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

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LLC vs S-Corp in Mississippi

When starting a small business in the Mississippi, 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 Mississippi. 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 Mississippi. 

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 Mississippi

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 Mississippi?

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. 

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What is an S-Corp in Mississippi?

Unlike a limited liability company (LLC) or other business structures, Mississippi 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 Mississippi

Creating a business in Mississippi 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 Mississippi 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 Mississippi 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 Mississippi.

– WEBINARCARE EDITORIAL TEAM

Tax Difference Between LLC and S-Corp in Mississippi

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 Mississippi 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 Mississippi. Tax differs in terms of Pass-Through Taxes and Self-Employment Taxes.

  • Pass-Through Taxes: LLC and S-Corporation in Mississippi 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 Mississippi 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 Mississippi 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 Mississippi 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.

Mississippi 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 Mississippi, it costs $0, which can be paid to the MO Secretary of State. Of course, before forming the whole LLC, you must pay the initial fee of $50 to the Mississippi Secretary of State.

LLC Vs. S-Corp Ownership Comparison

LLCs and S-Corporations in Mississippi 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

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

Mississippi 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

Mississippi 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 Mississippi.

Mississippi 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

Mississippi 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.

Mississippi 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

Mississippi 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 Mississippi Operating Agreement.

Mississippi 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.

Mississippi 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 Mississippi: LLC or S-Corp?

Filing an LLC or S-Corporation in Mississippi 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 Mississippi, you must submit the Certificate of Formation to the Mississippi Secretary of State. Your Certificate of Formation must include information about your Mississippi LLC, as well as payment of the associated filing fee.

Furthermore, you must submit additional papers to make the Mississippi 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 Mississippi: LLC or S-Corp?

Taxes for LLCs and S-Corporations in Mississippi 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 Mississippi LLC Cost for detailed information.

Mississippi 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 Mississippi 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 Mississippi?

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 Mississippi. 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 Mississippi.

FAQs

What is the difference between an LLC and an S-corp in Mississippi?
An LLC and an S-corp have different structures and tax implications in Mississippi.
Which option is better for small businesses – LLC or S-corp in Mississippi?
Both LLC and S-corp are good options for small businesses in Mississippi, but it depends on various factors.
How do I form an LLC or S-corp in Mississippi?
You can form an LLC or an S-corp in Mississippi by filing articles of organization/incorporation with the Secretary of State.
Are there any additional fees to form an LLC or S-corp in Mississippi?
There may be additional fees to form an LLC or S-corp in Mississippi, like franchise taxes or state fees.
What is the annual fee for a Mississippi LLC?
The annual fee for Mississippi LLC is $50.
What are the ongoing compliance requirements for Mississippi LLC?
Mississippi LLCs have to file an annual report every year to maintain compliance.
What is the annual fee for a Mississippi S-corp?
The annual fee for Mississippi S-corp is $60.
What are the ongoing compliance requirements for Mississippi S-corp?
Mississippi S-corp has to file annual reports and pay franchise taxes to maintain compliance.
What are the tax benefits of forming an LLC or S-corp in Mississippi?
Mississippi LLCs and S-corps offer various tax benefits to their owners, like not being taxed at the corporate level.
Can an out-of-state entity form an LLC or S-corp in Mississippi?
Yes, an out-of-state entity can form an LLC or S-corp in Mississippi.
Is there a residency requirement for members or shareholders of an LLC or S-corp in Mississippi?
There is no residency requirement for members or shareholders of an LLC or S-corp in Mississippi.
Can an LLC or S-corp be taxed as an S-corp in Mississippi?
An LLC can choose to be taxed as an S-corp in Mississippi by making an IRS S-corp election.
Are LLCs required to hold regular meetings in Mississippi?
No, LLCs are not required to hold regular meetings in Mississippi.
How many members can an LLC have in Mississippi?
An LLC can have any number of members in Mississippi.
Are there personal liability protections for owners of an LLC or S-corp in Mississippi?
Both LLCs and S-corps offer personal liability protections for their owners in Mississippi.
Can an LLC or S-corp in Mississippi be established as a nonprofit organization?
Yes, an LLC or S-corp can be established as a nonprofit organization in Mississippi.
What is the minimum number of shareholders for a Mississippi S-corp?
A Mississippi S-corp must have at least one shareholder.
What is the formation timeframe for an LLC or S-corp in Mississippi?
The formation timeframe for an LLC or S-corp in Mississippi may vary depending on various factors.
Can an LLC or S-corp in Mississippi change its entity structure?
Yes, an LLC or S-corp can change its entity structure in Mississippi.
What is the distribution of profits for LLCs in Mississippi?
Profits of an LLC in Mississippi are distributed among its members in proportion to their ownership.
Can an LLC have a single member in Mississippi?
Yes, an LLC can have a single member in Mississippi.
What is the formation fee for a Mississippi LLC?
The formation fee for a Mississippi LLC is $50.
What are the tax forms required for Mississippi S-corps?
Mississippi S-corps are required to file state and federal tax returns.
Can LLCs or S-corps be taxed as Partnerships in Mississippi?
LLCs or S-corps can be taxed as partnerships by default in Mississippi.
Can LLCs or S-corps benefit from tax deductions in Mississippi?
Yes, both LLCs and S-corps can benefit from various tax deductions available in Mississippi.
Are LLC or S-corp names protected in Mississippi?
Yes, LLC and S-corp names are protected in Mississippi once registered.
Can an LLC or S-corp sell stocks in Mississippi?
An LLC cannot sell stocks, whereas an S-corp can sell stocks in Mississippi.
What is the LLC annual reporting requirement in Mississippi?
LLCs in Mississippi are required to file annual reports with the secretary of state to maintain compliance.
What is the name reservation fee for LLC or S-corp in Mississippi?
The name reservation fee for LLC or S-corp in Mississippi is $25.
What is the main difference between an LLC and an S-Corp in Mississippi?
The main difference between the two business structures is in terms of taxation.
How is an LLC taxed in Mississippi?
LLCS are taxed like partnerships in Mississippi, which means they’re subject to pass-through taxation.
How is an S-Corp taxed in Mississippi?
S-Corps in Mississippi are also taxed like partnerships, meaning they’re subject to pass-through taxation.
Are there any income limits for S-Corps in Mississippi?
No, there are no income limits or restrictions placed on S-Corps in Mississippi.
Are there any annual fees or taxes associated with forming an S-Corp in Mississippi?
Yes, there is an annual franchise tax that S-Corps must pay in Mississippi.
How much is the annual franchise tax for S-Corps in Mississippi?
The annual franchise tax for S-Corps in Mississippi is $125.
Do LLCs have to pay an annual franchise tax in Mississippi?
Yes, LLCs in Mississippi are subject to an annual franchise tax of $50.
Can an LLC be taxed as an S-Corp in Mississippi?
Yes, an LLC can elect to be taxed as an S-Corp in Mississippi by submitting Form 8832 with the IRS.
Are there any restrictions on who can own an S-Corp in Mississippi?
Yes, there are restrictions on who can own an S-Corp in Mississippi. Shareholders must be individuals or certain types of trusts.
Does an LLC have to have at least two members in Mississippi?
No, LLCs in Mississippi can be formed with a single member.
Can an LLC have an unlimited number of members in Mississippi?
No, the number of members an LLC can have in Mississippi is limited to the number permitted under state law.
Are LLCs required to hold annual meetings in Mississippi?
No, LLCs are not required to hold annual meetings in Mississippi.
Does an S-Corp have to hold annual meetings in Mississippi?
Yes, S-Corps are required to hold annual meetings in Mississippi.
Is there a specific date by which S-Corps must hold their annual meetings in Mississippi?
No, there is no specific date set for S-Corps to hold their annual meetings in Mississippi.
Can an LLC be managed by its members in Mississippi?
Yes, LLCs in Mississippi can be managed either by members or by managers.
Can an S-Corp be managed by its shareholders in Mississippi?
Yes, S-Corps in Mississippi are typically managed by their shareholders.
Are LLCs required to file initial reports in Mississippi?
Yes, LLCs in Mississippi must file an initial report with the Secretary of State.
Is there a fee associated with filing an initial report for an LLC in Mississippi?
Yes, there is a fee of $50 associated with filing an initial report for an LLC in Mississippi.
Are S-Corps required to file initial reports in Mississippi?
No, S-Corps in Mississippi are not required to file initial reports.
Are there any restrictions on the number of shareholders an S-Corp can have in Mississippi?
Yes, S-Corps in Mississippi are limited to 100 shareholders.
Can an S-Corp have foreign shareholders in Mississippi?
Yes, S-Corps in Mississippi can have foreign shareholders.
Is there a difference in liability protection between an LLC and an S-Corp in Mississippi?
Both LLCs and S-Corps in Mississippi offer limited liability protection to their owners.
Can an LLC have a DBA (Doing Business As) in Mississippi?
Yes, LLCs in Mississippi can operate under a DBA.
Can an S-Corp have a DBA in Mississippi?
Yes, S-Corps in Mississippi can also operate under a DBA.
Is there a difference in the reporting requirements for LLCs and S-Corps in Mississippi?
Yes, while S-Corps in Mississippi must file annual reports with the Secretary of State, LLCs do not.
Can an individual be its own S-Corp in Mississippi?
No, an individual cannot be their own S-Corp in Mississippi.
Are there any differences in the dissolution process for LLCs and S-Corps in Mississippi?
Yes, there are differences in the dissolution process for LLCs and S-Corps in Mississippi based on legal requirements.
Do both business structures offer the same protection from personal liability for business debts in Mississippi?
Yes, both business structures offer limited liability protection for business debts in Mississippi.
Are tax considerations the only difference between LLCs and S-Corps in Mississippi?
No, there may be other differences in terms of legal structure and the rights and responsibilities of the owners.

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Conclusion

Ultimately, choosing an LLC and an S-Corp in Mississippi 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 Mississippi 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.

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