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

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LLC vs S-Corp in Oklahoma

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

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 Oklahoma

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 Oklahoma?

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 Oklahoma?

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

Creating a business in Oklahoma 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 Oklahoma 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 Oklahoma 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 Oklahoma.

– WEBINARCARE EDITORIAL TEAM

Tax Difference Between LLC and S-Corp in Oklahoma

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

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

Oklahoma 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 Oklahoma, it costs $25, which can be paid to the OR Secretary of State. Of course, before forming the whole LLC, you must pay the initial fee of $100 to the Oklahoma Secretary of State.

LLC Vs. S-Corp Ownership Comparison

LLCs and S-Corporations in Oklahoma 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

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

Oklahoma 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

Oklahoma 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 Oklahoma.

Oklahoma 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

Oklahoma 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.

Oklahoma 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

Oklahoma 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 Oklahoma Operating Agreement.

Oklahoma 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.

Oklahoma 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 Oklahoma: LLC or S-Corp?

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

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

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

Oklahoma 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 Oklahoma 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 Oklahoma?

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 Oklahoma. 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 Oklahoma.

FAQs

What is the difference between an LLC and an S-corp in Oklahoma?
Unlike an S-corp, an LLC is not a tax designation, but an S-corp is. Additionally, the owners of an LLC are called members, while an S-corp has shareholders.
Can an LLC elect to be taxed as an S-corp in Oklahoma?
Yes, an LLC can make a corporate election with the IRS to be taxed as an S-corp in Oklahoma.
Which is generally cheaper to form, an LLC or an S-corp in Oklahoma?
LLCs typically have lower filing fees and administrative costs than an S-corp in Oklahoma.
Can I have an LLC and an S-corp in Oklahoma?
No, an LLC cannot be an S-corp and vice versa in Oklahoma.
Which corporate entity is more flexible, an LLC or S-corp in Oklahoma?
An LLC generally offers more flexibility in terms of management structure and tax treatment.
Is it mandatory to have more than one shareholder to form an S-corp in Oklahoma?
No, a single shareholder can form an S-corp in Oklahoma.
If my S-corp loses money, is that a tax deduction for all members in Oklahoma companies?
Yes, shareholders of an S-corp in Oklahoma can take the loss on their individual tax returns.
Which entity provides more liability protection, an LLC or S-corp in Oklahoma?
Both entities offer limited liability protection in Oklahoma, but LLCs may offer more protection because they don’t have the strict formalities of an S-corp.
Do LLCs and S-corps pay the same percentage of self-employment taxes in Oklahoma?
No, LLCs may be subject to more self-employment taxes in Oklahoma than S-corps.
Is there a limit on the number of members an LLC can have in Oklahoma?
No, there is no limit on the number of members an LLC can have in Oklahoma.
How is profit and loss shared in an S-corp in Oklahoma?
Profits and losses are proportional to the percentage of ownership held by each shareholder in an S-corp in Oklahoma.
Can an S-corp in Oklahoma have more than one class of stock?
No, S-corps in Oklahoma cannot have more than one class of stock.
Do LLCs need to hold annual meetings in Oklahoma?
No, LLCs do not have to hold annual meetings in Oklahoma.
Can an S-corp in Oklahoma own another business entity?
Yes, an S-corp in Oklahoma can own or control other businesses.
Can a foreign entity form an LLC or S-corp in Oklahoma?
Yes, foreign entities can form an LLC or S-corp in Oklahoma as long as they meet the state’s requirements.
Can non-residents be shareholders of an LLC or S-corp in Oklahoma?
Yes, both LLCs and S-corps in Oklahoma can have non-resident shareholders.
Can an LLC in Oklahoma issue convertible bonds to raise capital?
Yes, LLCs in Oklahoma can issue convertible bonds to raise capital.
How is ownership in an S-corp in Oklahoma transferred?
Ownership in an S-corp in Oklahoma can be transferred by selling shares to other shareholders or by selling them to an outside party.
Can an S-corp in Oklahoma file separately from its shareholders for tax purposes?
No, an S-corp in Oklahoma is only a tax designation and does not file separately.
How is revenue distributed in an S-corp in Oklahoma?
Revenue is distributed to shareholders in proportion to their ownership stake in an S-corp in Oklahoma.
Can an LLC or S-corp in Oklahoma elect to be taxed as a C-corp?
Yes, both LLCs and S-corps in Oklahoma can elect to be taxed as a C-corp with the IRS.
Can an S-corp in Oklahoma also be a benefit corporation?
Yes, an S-corp in Oklahoma can also be a benefit corporation, which focuses on social and environmental issues in addition to profitability.
When are LLCs and S-corps considered to be “in good standing” in Oklahoma?
LLCs and S-corps are considered to be in good standing in Oklahoma when all required reports and fees are filed and paid on time.
Can an S-corp in Oklahoma have more than 100 shareholders?
No, an S-corp in Oklahoma cannot have more than 100 shareholders.
How does an LLC in Oklahoma vote on company decisions?
LLCs can choose between either a member-managed structure where each member has voting power, or a manager-managed structure where voting power is delegated to one or more managers.
Are owners of LLCs known as partners in Oklahoma?
No, owners of LLCs are known as members in Oklahoma.
Does an S-corp in Oklahoma have to follow specific bylaws?
Yes, an S-corp in Oklahoma must follow specific bylaws, which outline their operational procedures.
How does ownership in an LLC in Oklahoma differ from a partnership?
Unlike in a partnership, members of an LLC in Oklahoma have liability protection and don’t have to split profits equally.
How do I form an LLC in Oklahoma?
To form an LLC in Oklahoma, you must file Articles of Organization with the Oklahoma Secretary of State.
How do I form an S-Corp in Oklahoma?
To form an S-Corp in Oklahoma, you must first form a corporation, then file Form 2553 with the IRS to elect S-Corp status.
Are there any differences in state filing requirements between an LLC and S-Corp in Oklahoma?
No, the state filing requirements for an LLC are the same as for an S-Corp in Oklahoma.
How are LLCs and S-Corps taxed differently in Oklahoma?
LLCs and S-Corps in Oklahoma are taxed the same at the state level, but S-Corps have more favorable federal tax treatment.
Can LLCs and S-Corps both have a single owner in Oklahoma?
Yes, both LLCs and S-Corps in Oklahoma can have a single owner, but LLCs offer more flexibility for ownership structure.
Can LLCs and S-Corps both have multiple owners in Oklahoma?
Yes, both LLCs and S-Corps in Oklahoma can have multiple owners, but an S-Corp cannot have more than 100 shareholders.
Do LLCs and S-Corps have different recordkeeping requirements in Oklahoma?
Yes, LLCs have more flexible recordkeeping requirements compared to S-Corps in Oklahoma.
Do LLCs and S-Corps have different annual filing requirements in Oklahoma?
No, both LLCs and S-Corps in Oklahoma are required to file an annual report with the Secretary of State.
Do LLCs and S-Corps have different name requirements in Oklahoma?
No, the naming requirements for LLCs and S-Corps in Oklahoma are the same.
Can foreign entities form LLCs and S-Corps in Oklahoma?
Yes, foreign entities can form LLCs and S-Corps in Oklahoma, but they must meet certain registration requirements.
Can Oklahoma LLCs and S-Corps do business in other states?
Yes, Oklahoma LLCs and S-Corps can do business in other states, but they must comply with each state’s registration and tax requirements.
Are there any residency requirements for owners of an LLC or S-Corp in Oklahoma?
No, there are no residency requirements for owners of an LLC or S-Corp in Oklahoma.
How do I dissolve an LLC in Oklahoma?
To dissolve an LLC in Oklahoma, you must file Articles of Dissolution with the Oklahoma Secretary of State.
How do I dissolve an S-Corp in Oklahoma?
To dissolve an S-Corp in Oklahoma, you must file Articles of Dissolution with the Oklahoma Secretary of State.
Can I convert my LLC to an S-Corp in Oklahoma?
Yes, you can convert your LLC to an S-Corp in Oklahoma by filing Form 8832 with the IRS and then Form 2553.
Can I convert my S-Corp to an LLC in Oklahoma?
Yes, you can convert your S-Corp to an LLC in Oklahoma by filing Articles of Organization with the Oklahoma Secretary of State and dissolving the S-Corp.
Are there any special requirements for professional LLCs in Oklahoma?
Yes, professional LLCs in Oklahoma must be licensed and registered with the appropriate governing body for their profession.
Do Oklahoma LLCs and S-Corps have to maintain a registered agent?
Yes, Oklahoma LLCs and S-Corps must maintain a registered agent who is a resident of Oklahoma.
Can an LLC or S-Corp act as its own registered agent in Oklahoma?
No, an LLC or S-Corp cannot act as its own registered agent in Oklahoma.
How do I change my registered agent in Oklahoma?
To change your registered agent in Oklahoma, you must file a form with the Oklahoma Secretary of State.
Can I use a commercial registered agent service for my LLC or S-Corp in Oklahoma?
Yes, you can use a commercial registered agent service for your LLC or S-Corp in Oklahoma.
Are there any restrictions on the types of businesses that can form an LLC or S-Corp in Oklahoma?
No, any type of business can form an LLC or S-Corp in Oklahoma as long as they meet the legal requirements.
Are there any formation fees for LLCs and S-Corps in Oklahoma?
Yes, there are filing fees for both LLCs and S-Corps in Oklahoma.
Can I have another business entity as a member of my LLC in Oklahoma?
Yes, you can have another business entity as a member of your LLC in Oklahoma.
Do Oklahoma LLCs and S-Corps have to obtain a business license?
Yes, LLCs and S-Corps in Oklahoma may need specific licenses and permits depending on their type of business and location.
How can I obtain more information about forming an LLC or S-Corp in Oklahoma?
You can visit the Oklahoma Secretary of State website for detailed information and instructions on forming an LLC or S-Corp in Oklahoma.

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Conclusion

Ultimately, choosing an LLC and an S-Corp in Oklahoma 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 Oklahoma 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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