Question from a reader: Structure of a business as LLC or S Corp. I would like to know what is betther for a clothing company LLC or S Corp? Which are the benefits and disavantages of each option?

It appears that you have done your homework and is narrowing down your decision to two choices: LLC or S-Corp.

When making your selection there are several significant areas for considerations- a) employment tax, b) liabilities, and c) ease of operation.

a) Employment Tax: A major factor is taxes paid on earnings. The owner of an LLC is considered to be self-employed. Consequently, the entire net income from your earnings is subject to the 15.3% in “self-employment tax” which goes toward social security and Medicare.

In an S corporation, only the salary paid to the employee-owner is subject to employment tax. The remaining income is subject to income tax but not employment taxes.

b) Liabilities. We live in a litigious society. A LLCs generally will give you superior liability protection than a S-Corp.

c) Flexibility in ownership and ease of operation. There are no restrictions on the ownership of an LLC. An LLC is simpler to operate because it is not subject to the formalities by which S corps must abide.

There are additional factors which could impact your decision: investment in real estate or other passive investments, multistate operations, number of owners.

These are general comments. You should discuss your specific legal issues with your personal attorney.