We recently formed an LLC with two members. We are a landscaping company, we are the only two members/owners/workers. We need to choose a tax status of partnership or S-Corp. We are trying to understand the advantages/disadvantages and make a decision to be able to file our forms. Any advice?
1 Answer from Attorneys
If you have formed a LLC by filing articles with the Missouri Secretary of State then you have already chosen the tax status of limited liability company. For small businesses, this normally provides the best entity form. It provides the tax exemptions of a traditional S-Corp, the pass-through taxation of a partnership but offers liability protection greater than a sole proprietorship.
If you have not filed your LLC with the MO Secretary of State, then I would recommend doing so. The statutory requirements can be found in Missouri Revised Statutes section 347.037. If you have not done so, you will probably be considered a partnership with respect to liability to each other and fiduciary duty to each other.
For a small business as your own, I would recommend a LLC, hands down. The major advantage of a LLC over a corporation is that it will not be double taxed. A corporation's income will be taxed (because it is a legal "person") and then those that have an income from the corporation will also pay personal income taxes. A LLC income is directly filed on a personal income tax and only subject to single taxation. A LLC provides better liability protection than a partnership because the owners will be liable for only those contributions given to the business. In a partnership the partners will be liabile for the partnership debts and liabilities on dissolution. (Be careful though, because courts will pierce the corporate veil if the LLC did not maintain corporate formalities (minutes at meetings, separate bank accounts, etc.) and was run in a manner as to be a shell of a corporation.
A LLC, and filing correctly to receive Articles of Incorporation, will provide the best parts of both a S-Corp status and partnership.
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