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LLC's are ripoffs. Use an S-Corp instead. They are far cheaper and easier, are FAR more flexible, and you get the same tax benefits. LLC's are for people who d
by jasonkolb 16y ago
LLC's are ripoffs. Use an S-Corp instead. They are far cheaper and easier, are FAR more flexible, and you get the same tax benefits.
LLC's are for people who don't know any better (and this includes myself, several times now in the past, having only been fully educated in this area fairly recently).
- gte910h 16y agoWhy is an LLC filing as an S-Corp a ripoff compared to an actual LLC? I was advised to that particular form of business by tax professionals and would like to hear why you think they are deficient. Now if you're just talking as compared to a disregarded entity LLC, I would agree with you
- georgecmu 16y agoCan you elaborate on how an LLC is a rip-off? (It may also be useful to mention your state). So far, in Pennsylvania, I've had a different experience.
- jasonkolb 16y agoIt depends on what you are doing. If you are losing money and not trying to transfer ownership interests you will have no problem. Once you start making money or want to do anything a tiny bit more complex you have created a hornet's nest for yourself.
- Terretta 16y agoAgain, my last LLC earned 8 figures a year in revenue with several accredited investor bridges under our belts, before taking $27M in funding and converting to C. My current LLC earns 7 figures a year. In both, we did things that were quite complex, and being an LLC made them easy compared to being an S. In my experience, your comments are exactly backwards.
- Terretta 16y agoThis comment is almost exactly backwards for most startup purposes. In particular, S Corp compliance is more tedious and costly, while ownership structure is less flexible.
- jasonkolb 16y agoOk, let me respond a little more since I'm not on my iPad trying to peck out a response. Will try to get all of the questions answered in one shot here. Why is it a ripoff? In my state (IL) it costs $250 annually to keep your LLC in good standing, while it costs $75 a year for an S-Corp. Why is it a ripoff, reason number 2? When you form an LLC you have to spend lots of time with your lawyer hashing out things like what happens to the company when you die, if you have a partner the complexity of the operating agreement goes up exponentially. With a corp all of these things are already determined for you by a huge body of corporate law. With an LLC you are reinventing the wheel. Based on the original question this is a no-brainer for the poster, this alone is a big enough reason to scrap the LLC idea immediately. Why is it a ripoff, reason number 3? The reason your tax guy is telling you it's a good deal is because of the pass through loss/profit which falls through to you. If you dig deep enough you will discover that an LLC really IS you for most purposes, especially if you own 100% of the shares. It is not a separate legal entity unless you have more than one shareholder (go look it up). As far as complexity, that's bullshit. I would venture that 100% of the people who say this nonsense have no idea what you actually need to do in order to keep a corp in good standing. Yes, you need to have minutes of your annual meeting, even if it's something as simple as "the annual meeting was held over lunch and nothing of note was discussed". It is not rocket science, it's just scary when you're not familiar with it. Now for the really big reason: if you make a profit with an LLC, you will pay self-employment tax. If you take profits with an S-corp it is dividend income (or share buybacks, etc). You WILL pay more taxes using an LLC than an S-corp simply because you have far less flexibility owing to the fact that the corp is a separate legal entity while that is an extreme grey area for an LLC. I strongly suspect this is why people are generally herded towards LLC's, simply because they are easier to track and tax than corps. Your average CPA is useless when talking about these topics, they are used to talking about real estate tax deductions and dependents, not the intricacies of setting up a legal entity with the flexibility to deal with other legal entities, distribute shares, etc.
- jeffepp 16y agoIn Michigan you can form a LLC for $50. It's super simple. EDIT: I am also an attorney, but have never practiced. In most cases a LLC is the best way to incorporate your startup. (Unless, you know you are getting funding ASAP)
- jasonkolb 16y agoOk, how much is the yearly filing fee? How are profits taxed? How do you distribute ownership interest? Super simple to set up, complex as hell to use.