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Business Structure: S Corp vs C Corp or LLC?

S Corp vs C CorpI'm working with a friend of mine on setting up a business that runs fitness bootcamps.  He's been running it for a couple of years as sole proprietorship, but now wants to incorporate.  Can someone remind me again what the differences between LLC, S-Corp, and C-Corp are and make a suggestion as to which is better?

Answers

David Collins
Title: CEO
Company: Glentyde Capital Advisors
(CEO, Glentyde Capital Advisors) |

Bobby, the first tip is to not take any advice from someone who presumptively advocates one of those entity structures, without first hearing the details of your friend's situation. Any one of those structures might be the superior choice, but it's the case-specific details that make the call.

Fortunately, it's such a common question that there's no need to reinvent the research wheel, so to speak. The 'net is laden with discussions which analyze that question, and Googling "llc vs s corp" and "llc vs c corp" will yield a boatload of hits, such as

http://www.feinberghanson.com/LLCvsSCorp.html

Review a few discussions of that type, with your friend's context in mind, and you'll probably find yourself leaning in the direction of one of those structures.

Post back in here, of course, if there are certain details or specifics you'd like to kick around. Best of success with the new venture!

(Agent, JKS Solutions, Inc.) |

If you are planning to take on additional investors you need to seek the advice of an attorney who is expert in the area of private offerings. You will need to document a private offering whether you are an LLC or SCorp when you take investors that are not accredited (wealth of $1M or more).

An LLC will cause you no end to accounting and legal fees if you decide to take on additional investors in the future. At each buy in date an entity valuation is needed and balance sheet changes from date to date must be tracked based on member buy in. Chances are good that you do not have qualified accounting leadership on board to handle the buy ins if you are operating an LLC, unless you have big investors, even if you do have qualified staff, they will want to quit their jobs.

I'm not going to bore you with all the costs of accounting, tax and legal, that an LLC will bring to you if you plan to add investors down the road. But the cost of accounting can be enormous.

The cost of a private offering is enormous on its own.

I can recommend someone to talk with who essentially only consults with tech minded startups. email me and I will provide you with a referral.

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

Let's take a step back. In a perfect world you can have meetings with Accountants, Lawyers and CPA's to find the right structure based on your perceived needs. I am not suggesting that you do not take that approach. But even before you meet with those specialists, identify your needs with respect to the following -

-Liability (willing to accept personal or you desire entity protection);
-Capital needs (will you need investors or is your financing set);
-Continuity of life (do you care if the organization survives you);
-Transferability (ability to transfer shares to new investors or decendents);
-Taxation (do not forget this issue which will be very big in 2013);
-Management structure (board vs members).

Every structure has benefits and costs. By answering these questions, the right structure should fall out or at least some options will need to be excluded.

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