LLC vs S-Corp | What Entrepreneurs Need to Know in Arkansas

by
LLC vs S-Corp in Arkansas

When starting a small business in the Arkansas, one of the most important decisions you’ll make is choosing the right legal structure. Two popular options for small businesses are electing for S Corporation (S-Corp) or forming an LLC in Arkansas. Both offer certain advantages and drawbacks, making it crucial to understand their differences and determine the best fit for your business. 

If you want to know more about LLC vs. S-Corporation, which is better and suitable for the business you will form, you should consider a few things. Before we get through this article, you should understand LLC vs. S-Corporation in Arkansas. 

Webinarcare Editorial Team will help you define and understand the difference, and you must be guided by all the factors gathered in this article.

LLC Vs. S-Corporation in Arkansas

LLC vs. S-Corporation: Definition

A limited liability company is a type of business structure that guards against the impact of business liabilities on your personal assets. However, while not a typical business structure, the S Corp is a tax status you can register with the IRS. Unlike an LLC, an S-Corp does not offer personal asset protection. The two are explained in detail here:

What is an LLC in Arkansas?

A legal corporate organization that protects personal assets is a limited liability company (LLC). With this setup, the LLC member or owner can protect their personal assets if their company faces financial difficulties or becomes the subject of legal action. In some unique circumstances, the opposing party may pursue your personal assets if your firm is sued in court. When you are held personally accountable for the company’s debt, this is called “piercing the corporate veil.”

By creating an LLC in your state, you can take advantage of the pass-through tax benefit, which means that your personal income will be used to determine your income tax obligations rather than the revenue generated by your firm. 

We reviewed some of the Best LLC Services and provided features as an add-on with their packages for you to check out.

LLC Service

Rating & Pricing

Top Features

Learn More

#1 Recommendation

$0 + State fee

  • Free LLC Formation

  • Legal Support

  • Highly Reputed Company

Learn More

$299 + State fee

  • Single LLC formation package

  • Flat price for all services

  • Legal consultation

Learn More

What is an S-Corp in Arkansas?

Unlike a limited liability company (LLC) or other business structures, Arkansas S-Corporation is not a type of corporate entity. It’s a tax classification that, though in various ways for corporations and LLCs, might lead to considerable financial savings. S-Corporations are similar to LLCs, except that the Internal Revenue Service recognizes them as corporations for taxation purposes. 

A well-known alternative to the LLC is the S-corp. In contrast to a traditional C-corp, an S-corp is better suited for small and medium-sized firms, such as those with 100 total stockholders. 

LLC Vs. S-Corporation in Arkansas

Creating a business in Arkansas requires careful consideration, especially when deciding whether a state LLC or an S-Corporation is more advantageous. An LLC is a legal corporate structure, but an S-Corporation is a tax categorization which some small firms are eligible for. Forming Arkansas Corporations and LLCs can elect S-Corporation taxation by filing paperwork with the Internal Revenue Service (IRS). Making an S-Corporation may be less formal than establishing an LLC, and it typically offers less security. Additionally, S-Corporation in Arkansas does not offer the same safeguards that business owners seek in an LLC. When starting a business, thinking about your alternatives from a legal and tax perspective is important.

It is suggested that you speak with a legal professional before you begin setting up an LLC. They’ll understand what’s best for you and your company. To safeguard your personal assets from business debts, you can always start an LLC in Arkansas.

– WEBINARCARE EDITORIAL TEAM

Tax Difference Between LLC and S-Corp in Arkansas

There is a distinction between an LLC and an S-Corporation regarding taxation. Based on the differences in Federal and State taxes, you can determine whether S-Corporation or LLC in Arkansas is best for your business.

Federal Taxes 

There are a few federal tax factors to consider when selecting whether to operate an LLC or S-Corporation in Arkansas. Tax differs in terms of Pass-Through Taxes and Self-Employment Taxes.

  • Pass-Through Taxes: LLC and S-Corporation in Arkansas are the same regarding pass-through taxation at the federal level. LLCs and S-Corporations do not pay federal income taxes as separate legal entities because of pass-through taxation. Only their owners must pay federal income taxes on their portions of the business income. The company does not pay twice the tax in this kind of taxation. Unlike LLCs and S-Corporations, C-Corporations in Arkansas are mandated to have double taxation. It means that they must pay federal taxes at the entity level.
  • Self-Employment Taxes: Most LLC owners choose S-corporation taxation in Arkansas to reduce their self-employment taxes. This is because if you own an S-corporation, you are not required to be self-employed. Instead, you can join the company as an employee and receive regular salary benefits. On the other hand, an LLC member must include their guaranteed payments and a portion of the LLC’s earnings in calculating their self-employment tax. Distribution of shares defines S-Corporation shareholders in terms of their corporate incomes. 

Consider the following scenario: you are the sole owner of an LLC in Arkansas with a $200,000 annual profit. And $150,000 is a fair wage in your area for someone doing the same job as you. Under the default LLC taxation, you must pay self-employment taxes on the entire $200,000 profit. However, if your business is taxed as a state S-corp, you must only pay payroll taxes on the standard wage of $150,000. The remaining $50,000 will still be subject to income tax.

Arkansas State Taxes

At the state level, there aren’t any significant tax differences between regular LLCs and S Corporation LLCs. In terms of the annual LLC fee in Arkansas, it costs $0, which can be paid to the AR Secretary of State. Of course, before forming the whole LLC, you must pay the initial fee of $50 to the Arkansas Secretary of State.

LLC Vs. S-Corp Ownership Comparison

LLCs and S-Corporations in Arkansas have different ownership requirements that can impact your choice of business structure. Here’s a comparison of the key ownership requirements for each structure:

1. Number of Owners

Arkansas LLC: An LLC can have any number of owners, called members, from starting Arkansas Single Member LLC to multiple members LLC. There is no upper limit on the number of members an LLC can have.

Arkansas S-Corporation: An S-Corporation is limited to a maximum of 100 shareholders (owners). This restriction can be a limiting factor for businesses that plan to have many owners or seek outside investment.

2. Type of Owners

Arkansas LLC: An LLC can have various owner types, including individuals, corporations, other LLCs, trusts, and estates. Non-resident aliens can also be members of an LLC, like forming a Foreign LLC in Arkansas.

Arkansas S-Corporation: S-Corporations have more restrictive ownership requirements. Only U.S. citizens and resident aliens can be shareholders of an S-Corporation. Additionally, other corporations, LLCs, and certain types of trusts and estates are not eligible to be S-Corporation shareholders.

3. Classes of Ownership

Arkansas LLC: An LLC offers flexibility regarding ownership classes. Members can have varying levels of management rights, profit distribution rights, and voting rights, creating different classes of membership interests.

Arkansas S-Corporation: S-Corporations are limited to only one class of stock. While shareholders’ voting rights may differ, all shareholders must have equal rights to profit distribution and liquidation proceeds.

4. Profit Distribution

Arkansas LLC: Profit distribution in an LLC is flexible, allowing members to allocate profits and losses in any proportion they choose. This can be outlined in the Arkansas Operating Agreement.

Arkansas S-Corporation: Profits and losses in an S-Corporation must be distributed to shareholders based on the percentage of shares each owns. This can be less flexible than the profit distribution options available to an LLC.

Arkansas LLC offers more flexibility in ownership requirements, allowing for a greater variety of owner types, multiple classes of membership interests, and flexible profit distribution. In contrast, an S-Corporation has more restrictive ownership requirements, limiting the number and type of shareholders, allowing only one class of stock, and requiring proportional profit distribution based on share ownership. Consider these differences when deciding which business structure best fits your needs and goals.

Which is easier to incorporate in Arkansas: LLC or S-Corp?

Filing an LLC or S-Corporation in Arkansas requires planning and time. Even though it is not as simple as it appears, something manageable keeps it from being too difficult. LLC and S-Corporations can be formed using Registered Agent. To establish an LLC in Arkansas, you must submit the Certificate of Organization to the Arkansas Secretary of State. Your Certificate of Organization must include information about your Arkansas LLC, as well as payment of the associated filing fee.

Furthermore, you must submit additional papers to make the Arkansas S-Corporation election. Fill out Form 8832 to notify the Internal Revenue Service that you prefer to tax your LLC as a corporation rather than a partnership. Then you’ll submit Form 2553 to select S-Corporation status.

Remember that you must file annual tax returns and reports after forming your LLC to remain legally compliant.

Who Pays More Taxes in Arkansas: LLC or S-Corp?

Taxes for LLCs and S-Corporations in Arkansas depend on the tax purposes and the profit generated. LLCs are typically taxed at personal rates, and LLC owners can be treated as separate companies with their own federal tax identification numbers. You can check the Arkansas LLC Cost for detailed information.

Arkansas S-Corporation owners, on the other hand, must be paid a salary that includes Social Security and Medicare taxes. On the other hand, the owner can receive dividend income or some of the leftover profits without being classified as an employee and thus will not be subject to Social Security and Medicare taxes on that money.

Should I Incorporate Arkansas LLC as an S-Corporation?

Forming an LLC may be advantageous because your business assets are separate from your personal assets if you are a sole proprietor. You are not restricted from converting your LLC to an S-Corporation. Although an S-corporation must have a board of directors, a maximum of 100 shareholders, and follow more regulations, it is ideal for larger companies with more shareholders.

How do you convert LLC to S-Corporation in Arkansas?

You must submit Form 2553, Election by a Small Business Corporation, to the IRS to elect S-corp taxes if you want to form an LLC as an S-Corporation in Arkansas. A Form 2553 must be submitted by 75 days following the creation of your S-Corp or by 75 days following the start of the tax year in which the election is to be effective. 

You must also submit Form 8832, Entity Classification Election if your LLS-Corp has passed the deadline of 75 days and you wish to elect to be taxed as a corporation. You would collectively transmit Forms 2553 and 8832 via certified mail from the USPS. You can send your Form 2553 to the Department of the Treasury Internal Revenue Service Center – Ogden, UT 84201 Fax: 855-214-7520​ in Arkansas.

FAQs

What is an LLC in Arkansas?
An LLC in Arkansas is a limited liability company that is a hybrid business entity combining the characteristics of a corporation and a partnership or sole proprietorship.
What is an S corporation in Arkansas?
An S corporation in Arkansas is a regular corporation that meets certain Internal Revenue Service (IRS) requirements in order to avoid double taxation.
What types of taxes do LLCs in Arkansas have to pay?
LLCs in Arkansas are usually taxed as pass-through entities, which means that the LLC itself is not taxed, but its owners report their share of profits and losses on their personal income tax returns.
What types of taxes do S corporations in Arkansas have to pay?
S corporations in Arkansas are also usually taxed as pass-through entities, but they have to file an information return with the IRS and pay taxes on their built-in gains and excessive net passive income.
How do I form an LLC in Arkansas?
To form an LLC in Arkansas, you need to file articles of organization with the Arkansas Secretary of State, pay the filing fee, and obtain any necessary licenses or permits.
How do I form an S corporation in Arkansas?
To form an S corporation in Arkansas, you need to first form a regular corporation, file Form 2553 with the IRS within 75 days after the corporation is formed, and meet the other qualification requirements.
How many members does an LLC in Arkansas need?
An LLC in Arkansas may have one or more members, who can be individuals, other LLCs, corporations, or even foreign entities.
How many shareholders does an S corporation in Arkansas need?
An S corporation in Arkansas may have no more than 100 shareholders, who must be U.S. citizens or residents, and may not have more than one class of stock.
How is an LLC in Arkansas managed?
An LLC in Arkansas can be member-managed, in which the members themselves manage the LLC’s business and affairs, or manager-managed, in which the members appoint one or more managers to run the LLC.
How is an S corporation in Arkansas managed?
An S corporation in Arkansas is managed by its board of directors, who are elected by the shareholders, and by officers, who are appointed by the board or by the shareholders.
What liability protection does an LLC in Arkansas offer?
An LLC in Arkansas offers its members limited liability protection, which means that the members are generally not personally responsible for the LLC’s debts or obligations.
What liability protection does an S corporation in Arkansas offer?
An S corporation in Arkansas also offers its shareholders limited liability protection, although the protection may be weaker than that of an LLC in certain situations.
What are the annual fees for an LLC in Arkansas?
The annual fees for an LLC in Arkansas are $150, which includes both the franchise tax and the annual report.
What are the annual fees for an S corporation in Arkansas?
The annual fees for an S corporation in Arkansas are $150 for the franchise tax and any supplementary franchise tax due, but there is no annual report fee.
Can an LLC in Arkansas elect to be treated as an S corporation?
Yes, an LLC in Arkansas can elect to be treated as an S corporation for federal tax purposes by filing Form 2553 with the IRS.
Can an S corporation in Arkansas convert to an LLC?
Yes, an S corporation in Arkansas can convert to an LLC by filing articles of organization with the Arkansas Secretary of State, obtaining any necessary approvals, and making the necessary tax elections.
What are the conversion costs of converting from an S corporation to an LLC in Arkansas?
The costs of converting from an S corporation to an LLC in Arkansas may include filing fees, legal fees, accountant fees, taxes, and any other expenses related to the transition.
Can an LLC in Arkansas issue stock?
No, an LLC in Arkansas cannot issue stock, because it is not a corporation and has no ownership shares.
Can an S corporation in Arkansas issue stock?
Yes, an S corporation in Arkansas can issue stock, although the number of shareholders is limited to no more than 100.
Can a non-resident alien own an LLC in Arkansas?
Yes, a non-resident alien can own an LLC in Arkansas, but may need to file certain tax forms with the IRS.
Can a non-resident alien own an S corporation in Arkansas?
No, a non-resident alien cannot own stock in an S corporation in Arkansas, because the stock must be owned by U.S. citizens or residents.
What is the difference in taxes between an LLC and an S corporation in Arkansas?
The main tax difference between an LLC and an S corporation in Arkansas is that an LLC is taxed as a partnership or sole proprietorship, while an S corporation is taxed as a corporation that elects to be taxed as a pass-through entity.
Is an LLC or an S corporation more expensive to maintain in Arkansas?
The costs of maintaining an LLC or an S corporation in Arkansas depend on the size and complexity of the business, but generally an S corporation may be more expensive due to the additional tax filings and administrative requirements.
Can an LLC or an S corporation in Arkansas choose any fiscal year for its tax return?
No, an LLC or an S corporation in Arkansas must generally use the calendar year as its fiscal year for tax purposes, unless it can establish a business purpose or a natural year-end.
What legal protections does Arkansas provide for LLCs?
Arkansas provides legal protection for LLCs through the Arkansas Limited Liability Company Act, which governs the formation, operation, and dissolution of LLCs in the state.
What legal protections does Arkansas provide for S corporations?
Arkansas provides legal protection for S corporations through the Arkansas Business Corporation Act, which regulates the formation, operation, and dissolution of corporations in the state.
If my business is domiciled in Arkansas do I have to form my business entity in the state?
No, your business can be domiciled in Arkansas but could be formed in another state. However, you will need to register your business in Arkansas as a foreign entity if you conduct business there.
What are the requirements for forming an LLC in Arkansas?
To form an LLC in Arkansas, you will need to file Articles of Organization with the Secretary of State’s office.
What are the requirements for forming an S-Corp in Arkansas?
To form an S-Corp in Arkansas, you will need to file Articles of Incorporation with the Secretary of State’s office and meet the IRS’s eligibility requirements.
What is the cost of forming an LLC in Arkansas?
The filing fee for forming an LLC in Arkansas is $50.
What is the cost of forming an S-Corp in Arkansas?
The filing fee for forming an S-Corp in Arkansas is $50.
What is the difference between an LLC and an S-Corp in Arkansas?
The key difference between LLCs and S-Corps in Arkansas is how they are taxed.
Can an LLC be taxed as an S-Corp in Arkansas?
Yes, an LLC can choose to be taxed as an S-Corp in Arkansas.
What are the tax benefits of being taxed as an S-Corp in Arkansas?
The tax benefits of being taxed as an S-Corp in Arkansas include avoiding double taxation and potentially paying less in self-employment taxes.
What are the ownership requirements for an LLC in Arkansas?
There are no restrictions on ownership requirements for an LLC in Arkansas.
What are the ownership requirements for an S-Corp in Arkansas?
S-Corps are limited to 100 shareholders and cannot have nonresident aliens, corporations, or partnerships as shareholders.
Can an out-of-state resident form an LLC in Arkansas?
Yes, an out-of-state resident can form an LLC in Arkansas.
Can an out-of-state resident form an S-Corp in Arkansas?
Yes, an out-of-state resident can form an S-Corp in Arkansas.
Are LLCs required to have an operating agreement in Arkansas?
While not required by law, it is a good idea for LLCs to have an operating agreement in Arkansas.
Are S-Corps required to have a shareholder agreement in Arkansas?
While not required by law, it is a good idea for S-Corps to have a shareholder agreement in Arkansas.
What is the personal liability protection for members of an LLC in Arkansas?
Members of an LLC are not personally liable for its debts and obligations in Arkansas.
What is the personal liability protection for shareholders of an S-Corp in Arkansas?
Shareholders of an S-Corp are not personally liable for its debts and obligations in Arkansas.
Can an LLC have a single member in Arkansas?
Yes, an LLC can have a single member in Arkansas.
Can an S-Corp have a single shareholder in Arkansas?
Yes, an S-Corp can have a single shareholder in Arkansas.
What is the annual franchise tax for an LLC in Arkansas?
The annual franchise tax for an LLC in Arkansas is $150.
What is the annual franchise tax for an S-Corp in Arkansas?
The annual franchise tax for an S-Corp in Arkansas is $175.
What is the dissolution process for an LLC in Arkansas?
LLCs in Arkansas can be dissolved voluntarily by filing Articles of Dissolution or involuntarily by court order.
What is the dissolution process for an S-Corp in Arkansas?
S-Corps in Arkansas can be dissolved voluntarily by a shareholder vote or involuntarily by court order.
Can an LLC have foreign members in Arkansas?
Yes, an LLC can have foreign members in Arkansas.
Can an S-Corp have foreign shareholders in Arkansas?
Yes, an S-Corp can have foreign shareholders in Arkansas.
What is the per shareholder cap on S-Corp income in Arkansas?
There is no per shareholder cap on S-Corp income in Arkansas.
Can an LLC convert to an S-Corp in Arkansas?
Yes, an LLC can convert to an S-Corp in Arkansas.
Can an S-Corp convert to an LLC in Arkansas?
Yes, an S-Corp can convert to an LLC in Arkansas.
Do both LLCs and S-Corps need a registered agent in Arkansas?
Yes, both LLCs and S-Corps need a registered agent in Arkansas.
Can an LLC or S-Corp be its own registered agent in Arkansas?
No, an LLC or S-Corp cannot be its own registered agent in Arkansas.
What is the deadline for LLCs to file their annual report in Arkansas?
LLCs in Arkansas have until May 1st of each year to file their annual report.
What is the deadline for S-Corps to file their annual report in Arkansas?
S-Corps in Arkansas have until May 1st of each year to file their annual report.

Also Read

Conclusion

Ultimately, choosing an LLC and an S-Corp in Arkansas will depend on your business goals, management preferences, and tax considerations. It’s essential to consult with a legal or financial advisor to determine which structure is best for your business in Arkansas and help you navigate the formation process. Making an informed decision will set your business up for success and ensure you’re well-positioned for growth and profitability.

Leave a Comment