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What are the Differences in Starting an LLC vs. Starting an S Corporation?

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Question: What are the Differences in Starting an LLC vs. Starting an S Corporation?
Attorney Robert Warwick addresses the question of differences in cost and difficulty of forming an LLC vs. an S Corporation.
Answer:

Both corporations and LLCs are formed under state law, therefore the cost or difficulty of forming either entity will depend on the requirements of the particular state. In Virginia, for example, a corporation or an LLC is formed by filing a document (articles of incorporation for a corporation,; articles of organization for an LLC) with the State Corporation Commission (“SCC”). The documents are similar, the principal difference being that because a corporation has shares of stock, the articles of incorporation must include the number of shares that the corporation is authorized to issue and a description of any different classes of shares (note, however, that an S corporation may have only one class of shares). The fee for filing articles of incorporation varies from $75 to $2,525, depending on the number of authorized shares, whereas the fee for filing articles of organization is a flat $100.

Once a corporation is created under state law, if eligible it may become an S corporation by filing an election with the Internal Revenue Service. But an LLC that meets the tax requirements may also elect to be taxed as an S corporation by filing elections with IRS.

Note: For more information on the costs and procedures for starting an s corporation vs. starting an LLC, go to your state's Secretary of State website and look for the business division.

Robert Warwick has practiced tax and corporate law for more than 35 years, both in private practice and as in-house counsel for two major corporations. He is presently counsel to ThompsonMcMullan, a Richmond, Virginia law firm. He holds JD and MBA degrees from Cornell University and a Bachelor of Electrical Engineering from Rensselaer Polytechnic Institute. Mr. Warwick is actively practices law in Virginia and does not claim any knowledge as to the particular laws of any other jurisdiction.

Disclaimer: The foregoing does not constitute legal advice and does not create an attorney-client relationship.

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