Choosing the right legal structure for your business is essential for a variety of reasons, including determining the amount of taxes you pay, personal liability, and overall management. In Wyoming, business owners often consider two legal structures: the Limited Liability Company (LLC) and the S Corporation (S-Corp). In this article, we will compare the two entities and help you decide which one is best for your business.
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Limited Liability Company (LLC)
A Limited Liability Company or LLC is a popular business structure in Wyoming that provides personal asset protection to its members. A member can be an individual, partnership, corporation, or another entity. In an LLC, the owners are referred to as members, and there are no restrictions on the number of members allowed.
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LLCs enjoy many benefits, including limited personal liability, meaning that members are only liable for business debts up to the amount they have invested in the company. Debtors can't come after the member's assets (home, car, savings account) to repay the company's debts. Furthermore, another critical advantage of LLC is the flexibility in taxation. LLCs can choose to be taxed as sole proprietorships, partnerships, S corps, or C corps based on their preference.
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In Wyoming, it's simple and inexpensive to form an LLC. It takes only a few steps to register, including filing articles of organization, obtaining an EIN (Employer Identification Number), creating an operating agreement, and paying a registration fee.
S Corporation (S-Corp)
S-corps are independent legal entities that, similar to LLCs, provide personal asset protection for their shareholders. S-Corps, however, offer benefits beyond asset protection, especially for companies with high profitability.
A Wyoming S-Corporation has shareholders instead of members, and can have up to 100 shareholders. Another significant difference between S-Corps and LLCs is their taxation status. An S-Corp is an incorporated business that provides a single level of taxation: corporate profits are taxed once at the company level, similar to a C corporation. The profits then are distributed to individual shareholders and taxed at individual income tax rates, even if it isn't distributed. The corporate entity doesn't have to pay federal income tax or state tax.
An S-Corporation enjoys many benefits, one is distributing employee wages and corporate profit. Shareholders of an S-Corporation pay self-employment tax only on the wages they receive since they are also employees. All remaining profit is distributed in the context of shareholder dividends and treated differently in tax terms. Another advantage of an S-Corp is, unlike a traditional C-Corp, there are no shareholders restrictions in terms of citizenship or size.
To form an S corporation in Wyoming, the owner's need to file Articles of Incorporation with the state and create an official corporate structure and appoint directors, issue stock, and draft bylaws and operating agreement. Ongoing requirements include having regular shareholder meetings, appointing officers and directors, filing annual reports, paying relevant license fees and taxes, holding regular meetings, and maintaining an updated list of shareholders.
Conclusion
The decision to choose a legal entity is typically based on your present and future business plans and size. On one side, a Limited Liability Company offers flexibility and simplicities for small, owner-managed businesses; whereas, on the other side, an S Corporation benefits the preference of multiple shareholders afford a lower rate of taxation advantages to pass on profits while also offering robust asset protection.
If you're interested in setting up a legal entity for your business, Aiden and Dillion are familiarized with local and state laws governing the different types of businesses in Wyoming. And if you find setting up an LLC or an S-Corps is daunting, Aiden and Dillion legal services can guide you as they assist businesses of all types.
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