Entrepreneurs and small business owners are the backbone of the economy, and at Torres Law LLC, we are committed to helping them succeed. On this page, you can find answers to frequently asked questions about legal issues and costs related to starting a new company.
Torres Law LLC offers flat fee services for single member entity formation, which is typically $500, plus a $125 filing fee for the Office of the Secretary of State.
- What is the difference between an S-Corp and a LLC?
- Why should I hire an attorney to form my legal entity?
- Why is there no flat fee rate for multiple member entity formation?
What is the difference between an S-Corp and a LLC?
For many small business owners, choosing whether to form an S-Corporation (a corporation that elects to be taxed under Subchapter S of the IRS Code) or a Limited Liability Company (LLC) is one of the very first decisions to be made. In order to decide which choice is best for your small business, it is essential to understand the differences between an S-Corporation and an LLC.
Formation: In order to form both an S Corp or an LLC, business owners must file with the State of Ohio and must pay the Ohio filing fee ($125 for forming an LLC and $125 for forming a corporation).
Personal Liability: Shareholders in an S Corp and members in an LLC are typically not held personally liable.
Administrative Requirements: While an LLC has relatively few administrative requirements, an S Corp has to elect a board of directors, hold annual meetings, and comply with annual report filing requirements.
Management: With an S Corp, shareholders elect directors who manage business activities. With an LLC, on the other hand, members can set up the structure as they choose.
Term: While both S Corps and LLCs can last perpetually, an LLC is potentially subject to the laws of the state it is formed in. S Corps, on the other hand, can extend past death or withdrawal of shareholders without any potential interference by the state.
Taxation: For both an S Corp and an LLC, there is no tax at the entity level. Rather, the income in both the S Corp and LLC are passed through to the shareholders or members.
Double Taxation: Neither an LLC nor an S Corp are subject to double taxation.
Self Employment Tax: In both an S Corp and an LLC, salary is subject to self employment taxes. In an S Corp, however, shareholder distributions are not subject to employment tax.
Transferability of Interest: In an S Corp, interest is transferable if done in compliance with IRS regulations concerning who can own stock. With LLCs, interest may be transferrable, but whether it is transferable is dependent on the restrictions outlined in the operating agreement.
Capital Raising: With S Corps, shares of stock are sold to raise capital, however limitations prevent S Corp stock ownership by corporations. With LLCs, owners may sell interests, but doing so is subject to the operating agreement and potentially subject to securities laws.
Ease of Operation: S Corps are not only required to hold annual meetings, they are also required to record corporate minutes, elect a board of directors, and comply with annual report filing requirements. LLCs, on the other hand, are much easier to operate.
Directors/Officers/Members: With an S Corp, if there are less than three directors, the number of directors must be equal to the number of shareholders. There is no residency restriction placed on directors, and directors must be at least 18 years old. In an S Corp, it is permissible for one individual to hold all offices. (i.e. president, secretary and treasurer). In Ohio, a listing of directors and/or officers in the articles of incorporation is not required. With an LLC, membership can consist of one or more individuals. Like S Corps, there is no residency restriction placed on members, and members must be 18 years old. Similarly, Ohio does not require listing of LLC members in the articles of organization.
Why should I hire an attorney to form my legal entity?
The most common mistakes made by business owners who form their entities without an attorney are failure to correctly fill out the filing documents and the lack of an operating agreement or corporate regulations. Either of those problems can prove fatal to a business down the road. Hiring an Ohio attorney, who is familiar with Ohio law gives you assurance that the documents are being written and filed according to Ohio law and procedure.
At Torres Law LLC, our legal entity formation clients are provided with a binder containing all of the corporate formalities, including an operating agreement and initial meeting minutes of the company. Torres Law LLC also serves as registered agent of the new entity, a service other companies charge as much as $150 per year for. Moreover, when your company has additional legal needs, you can contact an attorney who is already familiar with your company and its products or services.
Why is there no flat fee rate for a multiple member entity formation?
With a single member LLC, the operating agreement can be shorter and simpler because there is only one owner. When there are multiple owners, however, the procedure governing meetings, voting, buy-outs, and member terminations, for example, require much more detail. Also, for multiple member entity formations, each party may wish to have their own attorney, which leads to additional time negotiating. (If only one attorney is representing the company, then that attorney cannot simultaneously represent any individual owner.) The overall cost will depend on the number of members and amount of detail requested.