What form to choose for the business, S Corporation or LLC?

Asked over 2 years ago - Baltimore, MD

What form would be better suited for my company S Corp or LLC (or other)in the state of Maryland?

I'm looking for four main characteristics:
1. Avoid double taxation on profits
2. Allow for a share distribution between owners of the company (and subs) to be legally recognized or otherwise protected at the time of company's registration
3. Allow for creation of subsidiaries
4. Would allow to file only informational tax return for the subsidiaries and parent company will file tax return for a total combined revenue from all subs

Attorney answers (2)

  1. Philip Leon Marcus

    Contributor Level 16

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    Answered . Unless you plan to go public the LLC is probably best. It is not an either/or. An LLC can choose sub-chapter S treatment, so that owners ("members") are treated as partners for income tax purposes. Thus there is no double taxation.

    Much as for an INC, members of an LLC are protected against personal liability for debts of the entity.

    An LLC can own other entities such as INC shares or membership in another LLC, enabling subsidiaries. I believe like an INC owning majority interest in another INC you can have rolling up of subsidiary financials into the parent’s--you'd need a tax expert to speak definitively to that. There is also a state LLC report to file each year, much as an INC needs to file.

    Here is the down side of an LLC: While there is a whole bunch of law describing how INCs are governed, an LLC needs to have all the members sign an "operating agreement" that describes how they will among themselves make company decisions. They can create something like a CEO and a Board, or whatever they want. It is more flexible actually. It is also private. That agreement does not get filed with the state as does the charter or articles of incorporation of an INC. But there will need to be attorneys representing the interests of each member.

    Some quite large entities (think Comcast) are LLCs. Simplicity of a partnership with liability limit of an INC.

    Licensed in Maryland. Information here is general, does not create a lawyer-client relationship, nor a... more
  2. Curtis Lamar Harrington Jr

    Contributor Level 20

    Answered . You should have more factors, especially long term ones and state what you will do in 5 - 10 years. There is no substitute for the kibitzing that might go on between you and your tax attorney.

    Curt Harrington Patent & Tax Law Attorney Certified Tax Specialist by the California Board of Legal... more

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