Choosing an S Corporation or LLC for your staffing firm
Last time updated: 17 July, 2023
Last time updated: 17 July, 2023
Last updated on July 17th, 2023 at 03:19 pm
Starting a staffing firm is relatively easy. It only takes a matter of minutes to get your own EIN on the IRS website, and then as long as you are registered to do business in your chosen state, have secured the necessary insurance, then you are ready to start hiring employees and go after clients.
When deciding what type of business structure you want, there are several things to consider. Owners of staffing firms, like all small business owners, want to protect themselves personally from the liabilities of their business. However, organizing as a C Corporation is probably unnecessary. Most staffing firm owners should choose to organize as either a Limited Liability Company (LLC) or S Corporation. Below we explore the similarities and differences between the two structures.
A Limited Liability Company (LLC) is a business entity in the US that may be classified for federal income tax purposes as a partnership, corporation, or entity disregarded as separate from its owner. Starting an LLC is relatively easy and inexpensive, and the guidelines are less stringent than an S Corporation.
You can start your LLC by registering online through your state.
1. Select a State
2. Name your LLC
3. Choose a Registered Agent
4. File the Articles of Organization
5. Create an Operating Agreement
An S Corporation is a business entity that elects to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. The key advantages to starting an S Corporation is that it offers tax benefits when it comes to excess profits, known as distributions. The remaining profits after “reasonable” salaries and payroll taxes can be distributed as dividends, which are taxed at a lower rate than income.
You can start an S Corp through a company like Legal Zoom. Follow the steps below to register your recruitment firm as an S Corporation.
1. Choose a business name.
2. Name company directors.
3. Determine stock category.
4. Draft articles of incorporation.
5. Draft corporate bylaws.
6. Procure the certificate of incorporation.
7. File the S corporation paperwork.
8. File with a registered agent.
S Corporations and LLCs have many similarities, including:
Key differentiators for S Corporations and LLCs are:
In our experience, many staffing firms choose to go the LLC route unless they anticipate significant growth and need to bring in additional equity partners. In that way, LLCs are often more attractive to smaller firms and start-ups, but it really depends on your individual needs and growth goals. Visit the startup resources section of our site or talk to us today if you are starting a staffing firm, need working capital to grow or need tax staffing solutions.
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