Should I set up a Corporation or LLC? 

You want to have the liability protections of a separate business entity.  The more difficult question is whether it should be a corporation or an LLC.  Corporations have been around for over 200 years.  LLCs are much more recent as they have been around for fewer than 50 years, and in Maine the current LLC act has only been in place since 2011.  It may seem like LLCs have been around for a long time, but the current laws for LLCs in Maine are very new.  An LLC is a good pass-through entity for tax purposes and is a great tool for businesses such as the ownership of an apartment building or any commercial property.  Although LLCs are a new fad, there is no reason to avoid considering a corporation for operating a business, especially if you intend to have payroll.

Summary of an LLC

• By default, an LLC is taxed as a sole proprietorship (single member) or partnership (multiple member)

•  LLC profits pass through to the owners

• An LLC can elect to be taxed as an S Corporation by filing the Subchapter S Election form 2553 – the LLC will file a tax return and no longer have profits pass through

• With an S Election the owners of the LLC can be considered employees of the business

Which one do I choose?

The differences between S Corporations and what are now essentially S LLCs are not much anymore. This makes the answer of which one to choose more difficult.

It does still depend on the purpose of the business.

Example: Sullivan Law, P. C. is a Corporation that filed an S Election, but the building Sullivan Law rents from Sullivan Real Estate Holdings, LLC is held in that LLC.

S Election

Corporations are taxed on their income, but approximately 75 years ago the IRS began allowing a filing to allow the corporation income to avoid being taxed by flowing through to the shareholders.  It is called an S Election because it is from Subchapter S of a section of the IRS Code.  This S Election has been used very successfully by small businesses for a long time.

Eventually, the IRS allowed the S Election on LLCs, and in 2004, the process was simplified to allow the filing of one form to make the election.

 Lately, we have been coming across a lot of people setting up LLCs online without the proper paperwork completed and believing they can have payroll. That is not the case. If you intend to have payroll for your LLC, you need to also file for the S Election with the IRS.  This filing is time sensitive.  This also begs the question of why not set up a corporation if you intend to have payroll!!!  Payroll for owners and shareholders of a business entity simplifies income and tax reporting.

Summary of Corporation

• Corporations are taxed on profits, but that is quickly and easily resolved by filing form 2553 with the IRS for the S Election

• S corporations file a tax return and pass through the profits to the shareholders.

Cost

We charge $1,350 including the filing fees with State.  This includes all paperwork to create the business entity with the State of Maine.  We will create your operating agreement or bylaws and all initial setup paperwork including ownership or shareholder certificates.

You need to file an annual report with the State of Maine with a fee of $85 to the State.  We are happy to be your Clerk/Registered Agent and get this done for you at a fee of $300 per year.  We require you to have us be your clerk if we set up your LLC or Corporation.  Why do we require you have us be your Clerk/Registered Agent?  To put it simply, you are welcome to do everything on your own, but if you recognize our value, then we will handle everything.