Sub-chapter S versus LLC?

[Synpax]

For small business with one or maybe less than 5 shareholders and eventually looking towards IPO?

 

[Synpax]

Just to add a little to this, I really haven't been able to find any difference between these two for my purposes, but there _has_ to be some substantive difference as they both exist.

 

[beefybull]

S corporations are limited to 35 shareholders, and to domestic
capitalization. LLCs are not so limited, in many states.

LLCs generally provide more accounting flexibility than either C or S
corporations.

Check with your accountant/CPA & your attorney for advice in your situation.

Also check this out, IRS FAQ about LLCs:
http://www.irs.gov/faqs/faq-kw127.html

 

[Synpax]

Thanks. I was aware of everything except that which is in the IRS document.

I will talk to my financial advisor about it but, and this probably comes to little or no surprise to you or anyone else here on EF, the info you get here is often superior to what you get from the people you know.

Thanks.

 

[MattTheSkywalker]

I'm just popping off here, but if you want to do an IPO, I can't imagine an investment bank would touch anything other than a C-corp...

 

[Synpax]

I'm just popping off here, but if you want to do an IPO, I can't imagine an investment bank would touch anything other than a C-corp...

That isn't true, actually, and I am unsure why you would think that. I've done some homework in the meantime and believe that S is the way to go. Here's why.

Obviously a company that IPOs will have to be a C, and the conversion can be done pretty easily - it involves no more than a statement to the IRS. And unless there is a shareholder number issue, there is really no reason to be anything other than an S corp right up until you decide to IPO.

So why not an LLC? Even before going public, there are conceptual shares in an S or C corp. But an LLC has a different equity concept - something called 'member interest' and is not easily convertable to public stock. Still, I imagine an LLC *could* go public (and like the S corp would covert to a C).

 

[MattTheSkywalker]

Obviously a company that IPOs will have to be a C,

that was my point sir.

That's why an investment bank would get involved.

The principal difference with LLCs is 'pass through taxation' - you can report company profits on your personal tax return; many LLC owners do this to report company losses against their own personal income.

Obviously a C-corp requires complete separation of corporate profits from individual income, even for the owners.

I am not that familiar with S-corps. But the conversion from LLC to C-corp is not as easy.

Useful info at www.nolo.com.

 

[Synpax]

Thanks.

You can be an S right up until the moment the bell is rung and the change gets effected by a letter to the IRS. Apart from that I don't think there is anything changed on the articles of incorporation,etc.

Gracias.