A cargo transportation or trucking company is a business that can grow big in the course of time. So, starting it under the umbrella of an independent legal entity is a much safe path. For this reason, many entrepreneurs-to-be choose between a limited liability company and an S-Corporation structure for their logistics venture. If it sounds like you, our quick overview will reveal this issue for you.
LLC vs S-Corp: How They Compare
Both entities require state filing and are not associated with their proprietors on a legal plane.
To be more specific, an LLC stands in-between unregistered entities and corporations combining the features of both structures. As such, it offers secure protection to your individual funds and property against business commitments along with the ultimate flexibility in management and taxation.
An S-Corp is a more complex structure, with more regulatory rules and restrictions to observe. One thing you should clearly understand is that it’s not an entity type but rather a tax status available for LLCs and corporations alike. In other words, you can’t register an S-Corp from scratch. First, you should file an LLC (you can contact any of the best online llc service) or start a C-Corporation and then, gain an S-Corp status for it from the IRS.
S-Corp and LLC Similarities
These two types of legal entity structures have many features in common, including a few key benefits for shipping or cargo transportations companies:
- Flexible taxes: LLCs and S-Corps are disregarded entities for tax purposes which means that they are free from paying income taxes at a business level. Enterprise revenues and losses are transferred to tax reports of its proprietors and are payable at a personal level, thus, cutting down the risk of double taxation;
- Protective corporate veil: What gives incorporated entities an edge over unregistered ones is the liability screen they provide to the enterprise owners. As a separate entity, your company will be in charge of any business-related debts, sues, lawsuits, and financial problems. You’ll have no personal responsibility for that and your own assets can’t be seized to settle the enterprise liabilities. To further enhance this liability veil, take care of splitting your own and company funds by opening a dedicated checking account for your venture;
- Simple filing rules: Similar to other disregarded entities, LLCs and S-Corporations enjoy very simple compliance rules. They just need to file state and tax reports once a year;
- More open to fundraising: Business loans, operational credit lines, factoring programs, and other additional financing resources will be all at your disposal. Besides, engaging partners won’t be a problem as well since legal entities look more reliable for investors and creditors;
- Strong market image: Named after their owners, unregistered entities usually lack the credibility and brand power of companies. Operating under the structure of a separate entity, your enterprise will get more trust and appreciation from customers, vendors, and suppliers. Your company will have more chances to build a professional image and gain a solid reputation on the market.
S-Corp and LLC Differences
As similar as they might seem, LLCs and S-Corps are not the same. They have quite a number of differences in the main aspects that clearly sets them apart:
- Membership structure: LLCs are open to an unlimited number of members and accept individuals and legal entities from the US and from abroad as their co-owners. S-Corps, on the other hand, are restricted by only 100 stockholders. Non-US residents, corporations, trusts, banks, and other legal persons are not allowed. Besides, the issue of the shares is limited by a single class of stock;
- Management system: LLCs are either owner-managed or manager-managed entities, with no bureaucracy in the management structure. By way of contrast, S-Corps have a strict and complex management hierarchy, and stockholders don’t operate the business on a daily basis;
- Formalities to observe: Unlike LLCs, S-Corps have multiple formalities they need to stick to. Stock issue and regular stakeholder and managing board meetings are to name a few;
- Profit distribution: Corporate profits and losses are allocated proportionally to the stakeholders’ interests in the company’s equity. Meanwhile, LLC owners can divide the profits as they want irrespective of their equity shares;
- Tax nuances: LLC members are self-employed persons, so their incomes are subject to self-employment levies accordingly. S-Corp owners could be employed in the company, which brings certain tax benefits. You’ll be free from self-employment and payroll taxes and will be able to reduce taxable income and dividend charges.
Is an LLC Good for a Shipping Company?
An LLC framework has a lot to offer to many types of businesses including logistic companies. LLCs allow you to start small and grow big without changing the company structure. You’ll get a chance to separate your own and your enterprise assets from the very beginning and obtain a much-sought liability shield without saddling yourself with too many formalities and statutory restrictions.
Is an S-Corp Good for a Cargo Transportation Company?
An S Corporation structure is a more appropriate choice for complex and bigger ventures than for smaller private companies. If you have ambitious plans, seek quick venture growth, and still want beneficial tax opportunities, an S-Corp is worth your attention. You’ll be able to easily engage side investors by issuing and selling stock, and taxation options offer a number of benefits to corporate owners.
Take Professional Advice
Whatever your intuition tells you, getting expert advice will never go amiss. There is a whole bunch of nuances and details that are beyond your radar, and a competent advisor will reveal them to you through the lens of your own company perspectives.
Summary
LLCs and Subchapter S Corporations have a lot in common as well as they have their own pluses and minuses. If you hesitate about which is a better option for your shipping firm, you can’t go wrong by starting it as an LLC and switching to an S-Corp if you outgrow the LLC capabilities.
