LLC vs S Corp

[Unregistered]

I am wondering if a small business with two other parties involved should form a S Corp or a LLC.

I'm thinking if you form a LLC as a partnership, there must be a general partner, the partner with the greatest liability. So, after the LLC decides to be taxed as a partnership, something must be done to shield the liability from the other partners. To accomplish this you then must form a corporation; the corporation will then be the general partner. Now at the end of the year, you must file a 1065, a 1120, 2 franchise tax returns---in Texas anyway, and three individual returns.

On the other hand, if a S Corp was formed, the liability (financial and legally speaking) is then shifted to the S Corp as long as there are several paper trails adhered to---corp minutes, seperate bank accounts, solid bylaws, and as long as the shareholders aren't grossly negligent. Now, the S Corp has three stockholders, each reporting their share of income on their own returns. The taxation of the individuals is virtually unchanged and their are fewer headaches at tax time.

Do any of you see the benefits of forming a LLC over a S Corp?

[Armando Beaujolais]

I'm thinking if you form a LLC as a partnership, there must be a general partner, the partner with the greatest liability. So, after the LLC decides to be taxed as a partnership, something must be done to shield the liability from the other partners. To accomplish this you then must form a corporation; the corporation will then be the general partner. Now at the end of the year, you must file a 1065, a 1120, 2 franchise tax returns---in Texas anyway, and three individual returns.

I think you're putting the cart before the horse.The whole principle behind an LLC is to shield members from liability. You don't have the equivalent of a general partner in an LLC. That's why there's been all the hoo haa over whether LLC members are liable for self-employment tax on distributive share of income. (general partners are defined on the basis of their liability, general partners are subject to SE tax on distributive share, there's no equivalent to a general partner in an LLC, are any LLC members subject to SE tax on distributive share? nobody knows at this point).

An LLC doesn't "decide" to be taxed as a partnership. Assuming the LLC is more than one owner, it IS taxed as a partnership, no decision applies. The only decision available is whether the LLC wants to make the entity classification election on Form 8832 to be taxed as a corporation.