Nebraska Limited Liability Company (LLC) versus S Corporations

That is a complicated question to answer.  The basic considerations are limiting the owners liability legally, governance issues, and the tax concerns.  I would suggest that you speak to an accountant about the tax implications.  (If you do not have an accountant you can call Kevin Furey who is an accountant in Omaha at (402) 895-5050).  

If you are getting income from the LLC it can be helpful to have it be taxed as an S corporation because money that comes out is not automatically assessed the higher self employment taxes.  Money coming out of an S corporation (or an LLC electing to be treated as one) can be taxed at the lower rate of capital gains rather than self employment income.

Benefits of an LLC

- The creation is not treated as a taxable event (as it would be for a corporation)

- No limits on the number of people or entities that can own interests (as there would be with a corporation)

- There would be a step-up in basis with an LLC upon the death of a member (not the case with an LLC).  

- Converting into a corporation later is possible (if you create as a corporation now, you cannot later go back to being an LLC).

-S corporations cannot be owned by C corporations, other S corporations, LLCs, partnerships or many trusts. 
- LLCs are allowed to have subsidiaries without restriction.

Formalities 

- S corporations face more extensive internal formalities. LLCs are recommended, but not required, to follow internal formalities.
- Required formalities for S corporations include: Adopting bylaws, issuing stock, holding initial and annual director and shareholder meetings, and keeping meeting minutes with corporate records.
 - Recommended formalities for LLCs include: Adopting an operating agreement, issuing membership shares, holding and documenting annual member meetings (and manager meetings, if the LLC is manager-managed), and documenting all major company decisions.

Differences in management
- Owners of an LLC can choose to have members (owners) or managers manage the LLC. When members manage an LLC, the LLC is much like a partnership. If run by managers, the LLC more closely resembles a corporation; members will not be involved in the daily business decisions.
- S corps have directors and officers. The board of directors oversees corporate affairs and handles major decisions but not daily operations. Instead, directors elect officers who manage daily business affairs.

Other differences
- Existence. An S corporation’s existence is perpetual, but some states require LLCs to list a dissolution date in the formation documents. Certain events, such as death or withdrawal of a member, can cause the LLC to dissolve.
- Transferability of ownership. S corporation stock is freely transferable, as long as IRS ownership restrictions are met. LLC membership interest (ownership) typically is not freely transferable—approval from other members is often required.
- Self-employment taxes. S corporations may have preferable self-employment taxes compared to the LLC because the owner can be treated as an employee and paid a reasonable salary. FICA taxes are withheld and paid on that amount. Corporate earnings after payment of the salary may be able to be treated as unearned income that is not subject to self-employment taxes. 

angela@madathillawllc.com
https://www.madathillawllc.com/
1104 S 76th Ave
Omaha, NE 68124
T: 402.807.3174

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