I am opening a small restaurant in SC. What kind of entity would be best – an LLC or an S-Corporation & why?
An LLC is best for very small numbers of investors: more than one (in which case you usually go with a sole proprietorship) and less than, say, 5. Once you get more investors (up to 100) you should go with an S corporation. In taxes, an LLC can choose to be taxed like an S corporation, or as a C corporation or sole proprietorship. Potentially you can pay less tax if you organize it properly. An S corporation is required to have yearly meetings (since it has more shareholders, who can’t be expected to be up on current events at all times). An LLC has a small structure, so meetings are not required. In some states there are special “franchise taxes” on LLCs, but not South Carolina. If you decide to go big, you might have to convert to an S corporation to allow more investors, but for a small restaurant you’re probably better going with an LLC. But you have to be careful to make sure that the terms of the partnership are CLEARLY spelled out in an operating agreement among you. I know that
