is there a big difference between LLC and s-corporation?

my investment group is trying to decide between a LLC and s-Corp anD I have talkin to a accountant and attorney and they both suggest either but the LLC cost 2500 to start and the s-Corp cost 2000…is that a good price and would I be wrong to want to save 500$ and choose the s-Corp?

They are very different. The only thing in common is pass through taxation.

The first question is what type of activity will be conducted through the entity and how many owners are we talking about. I guess that is two questions. Anyhow you can establish an LLC and have it taxed as an S-Corporation, partnership, or C corporation. (A disregarded entity would not apply in your case.) What you should consider is where do you want to take your business and will the entity you chose provide both legal and tax flexibility for all the owner. S corporations can provide favored tax treatment when the company is realizing income but are less than desirable when losses are involved. Corporations in general provide liability protection and LLCs provide asset and liability protection. So I hope you understand that before you leap ferret out the details to save yourself money and headaches in the long run.

Best of luck!

C-corp will generally have the lowest taxes as long as you leave the money in the corporation. If you plan to take distributions, then other entities are more favorable.

S-corp losses are not a problem as long as the losses don’t exceed your basis in the stock. This is not common. S-corp has no tax advantages over other entities; business expenses are always deductible. It does have some disadvantages to shareholders who are also employees.

I prefer LLC taxed as whatever over the corporate form. LLC maintains charging order protection; Corporations do not. Both entities protect you from actions that occur inside the entity; only the LLC protects the entity from the personal actions of the owners.

You don’t want to be a stockholder if another stockholder is sued, loses, and the creditor is awarded his stock investments. Now you’re “in business with” what may be a hostile creditor who owns part of the company. Not good. BLL can elaborate.

How to tax the LLC depends on your specific plans. There is no one right answer.

we plan on starting a LLC with purposes of getting into real estate…flippin houses or renting…im starting a website with the intentions on making revenue from it and i found out that it is going to cost more than i have, so i wanted to know if it was possible to make a business plan to take a loan out in the name of the LLC so that the LLC is liable for the loan instead of the members within it…and we have 3 members including myself…what do you think?

An LLC isn’t getting any loans without a personal guarantee of the members or a long credit history.

what do you mean by a ‘personal guarantee’ of the members?

The members will be responsible for paying the loan if the LLC doesn’t.

This is what we had to do on our property with our new LLC. You will have to sign your personal name as a guarantor of the loan. You can still have the property deeded in the LLC’s name though. You should look at this situation as you will be able to have the property held by the LLC, but your personal credit will be wrecked if you default. Our investment mortgage doesn’t show up on my personal credit, but I am personally responsible for the mortgage. If the bank gave any new entity a loan just to the entity with no personal guarantee, there would be nothing to keep the entity managers from just walking away from the property if times got tough.

the loan wouldnt be for the real estate…im starting a website with intentions on making revenue from it and found out i dont have enough money to start it, so i was going to make a business plan and try and get a loan out but still in the name of the LLC…so if the business plan was really good and worked and showed them a guarantee to get them their money back are you saying that they would still make the members personally liable?

Once the LLC has a track record and sizable assets, it is possible lenders will not require a personal guarantee.

Yes you will be personally liable. Consider the market at the present. Banks are scared to loan money so they want collateral and lots of it or your tax returns showing substantial income. If they provided you a non-recourse loan to the LLC and your business failed, remember most new business fail within the first year, they will be left with bad debt on their books. I recently refinanced a commercial building in an LLC that has been conducting business for over 10 years and shows ample income to support the debt but I was still required to sign a personal guarantee.

Best of luck.

would it be the same situation if we went with a s-corporation?

I doubt. I have seen owners of small companies with a history of 150 years of history be required to personally guarantee loans and contracts.

The form of entity has no bearing on the personal guarantee. It’s a matter of risk for the bank. Think of it another way – how many non-recourse loans are available? Not many. What you are asking for is the same when you borrow money through a company but you do not guarantee the loan. With that being said it is still a good idea to borrow the money through a business entity so you can start building credit under the entity for future loans. This is not to imply you won’t be required to give a personal guarantee but the loan will run against the business credit and not your personal credit score.