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

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LLC vs S-Corp in West Virginia

When starting a small business in the West Virginia, 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 West Virginia. 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 West Virginia. 

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 West Virginia

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 West Virginia?

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 West Virginia?

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

Creating a business in West Virginia 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 West Virginia 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 West Virginia 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 West Virginia.

– WEBINARCARE EDITORIAL TEAM

Tax Difference Between LLC and S-Corp in West Virginia

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

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

West Virginia 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 West Virginia, it costs $25, which can be paid to the WV Secretary of State. Of course, before forming the whole LLC, you must pay the initial fee of $100 (Online & by mail) to the West Virginia Secretary of State.

LLC Vs. S-Corp Ownership Comparison

LLCs and S-Corporations in West Virginia 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

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

West Virginia 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

West Virginia 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 West Virginia.

West Virginia 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

West Virginia 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.

West Virginia 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

West Virginia 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 West Virginia Operating Agreement.

West Virginia 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.

West Virginia 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 West Virginia: LLC or S-Corp?

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

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

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

West Virginia 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 West Virginia 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 West Virginia?

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 West Virginia. 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 – Kansas City, MO 64999 Fax: 855-887-7734​ in West Virginia.

FAQs

How do the filing fees for an LLC differ from those for an S-Corp in West Virginia?
Filing fees for an LLC in West Virginia are $100 and for an S-Corp, they are $200.
Is an LLC treated as a separate taxable entity in West Virginia?
No, an LLC is not treated as a separate taxable entity in West Virginia.
What is the minimum number of members/owners required for an LLC or an S-Corp in West Virginia?
The minimum number of members/owners required for both an LLC and an S-Corp is one in West Virginia.
How does liability protection compare between an LLC and an S-Corp in West Virginia?
Both LLCs and S-Corps offer limited liability protection to their owners, but the protections may differ depending on the specific circumstances.
Are LLCs or S-Corps subject to West Virginia state income tax?
Both LLCs and S-Corps are subject to West Virginia state income tax.
Do LLCs and S-Corps have different filing requirements for West Virginia state income tax?
No, both LLCs and S-Corps have the same filing requirements for state income tax in West Virginia.
Can an LLC or S-Corp in West Virginia have foreign owners?
Yes, an LLC or S-Corp in West Virginia may have foreign owners.
Is there a limit to the number of members/owners an LLC or S-Corp can have in West Virginia?
No, there is no limit to the number of members/owners an LLC or S-Corp can have in West Virginia.
Are LLCs or S-Corps in West Virginia required to file annual reports with the state?
Yes, both LLCs and S-Corps in West Virginia are required to file annual reports with the state.
How much is the annual report filing fee for an LLC or S-Corp in West Virginia?
The annual report filing fee for LLCs and S-Corps in West Virginia is $25.
Can an LLC or S-Corp in West Virginia elect to be taxed as a C-Corp at any time?
Yes, both LLCs and S-Corps in West Virginia can elect to be taxed as a C-Corp at any time.
How does the taxation of an LLC or S-Corp in West Virginia differ from that of a sole proprietorship or partnership?
LLCs and S-Corps in West Virginia can generally provide more favorable tax treatment compared to sole proprietors or partnerships, as well as limited liability protection.
Which entity is more appropriate for a small business with one owner in West Virginia, an LLC or S-Corp?
Both entities may be appropriate depending on the specific goals of the business, but an LLC may be more simple and cost-effective for a business with only one owner.
Can an LLC or S-Corp in West Virginia be owned by another LLC or S-Corp?
Yes, an LLC or S-Corp in West Virginia can be owned by another LLC or S-Corp.
As an owner of an LLC or S-Corp in West Virginia, can I give myself a salary?
Yes, owners can give themselves a salary with an S-Corp, but not with an LLC. Instead, owners of an LLC take “distributions.”
How does the dissolution of an LLC in West Virginia compare to that of an S-Corp?
The dissolution process may differ depending on the specific circumstances, but generally, LLCs are easier to dissolve than S-Corps in West Virginia.
Can I change my LLC or S-Corp to another entity type in West Virginia after formation?
Yes, both LLCs and S-Corps can be converted to a different entity type in West Virginia.
Can a business in West Virginia be both an LLC and an S-Corp at the same time?
No, a business cannot be registered as both an LLC and an S-Corp in West Virginia.
Are there any specific industry-related requirements for LLCs or S-Corps in West Virginia?
No, there are no specific industry-related requirements for LLCs or S-Corps in West Virginia.
How long does it take to form an LLC or S-Corp in West Virginia?
It typically takes 1-2 weeks to form an LLC or S-Corp in West Virginia.
Are LLCs or S-Corps treated differently for unemployment insurance purposes in West Virginia?
No, both LLCs and S-Corps are treated the same for unemployment insurance purposes in West Virginia.
Can an LLC or S-Corp in West Virginia have an unlimited lifespan?
Yes, both LLCs and S-Corps can have an unlimited lifespan in West Virginia.
How are distributions taxed for an LLC in West Virginia?
Distributions are not taxed as income for an LLC in West Virginia.
Can a corporation in West Virginia register as an S-Corp and then elect for C-Corp taxation at a later date?
Yes, a corporate entity in West Virginia can elect to change its tax classification from S-Corp to C-Corp at any time.
How is ownership typically divided in an S-Corp in West Virginia?
Ownership in an S-Corp is typically divided into shares of stock, which determine each owner’s stake in the company.
What happens to an LLC when an owner passes away in West Virginia?
An LLC may continue to operate after an owner passes away, depending on the operating agreement and state law governing the LLC.
Can an LLC or S-Corp in West Virginia have non-voting members?
Yes, both an LLC and S-Corp in West Virginia can have non-voting members.
How does the liability of individual owners differ between an LLC and an S-Corp in West Virginia?
Generally, an owner’s personal liability in both an LLC and an S-Corp is limited, but the protections may vary depending on the specific circumstances.
What is an LLC?
An LLC is a legal entity that provides limited liability to its owners.
What is an S-corp?
An S-corp is a business that elects to be treated as a pass-through entity for tax purposes.
Can I operate as an LLC or S-corp in all 50 states?
Yes, both LLCs and S-corps can operate in any state including West Virginia, but you need to file by following state rules and taxes.
How easy is it to form an LLC or S-corp in West Virginia?
Both are straightforward, but the requirements for each entity will vary based on the state. You can form both online.
How much does it cost to form an LLC or S-corp in West Virginia?
Costs for starting an LLC and an S-corp differ and range between approximately $100 to $300.
Does forming an LLC or S-corp protect my personal assets?
Yes, both entities offer limited liability protection for personal assets in the case of lawsuits against the business.
How are LLCs and S-corps taxed in West Virginia?
An LLC classified as a sole proprietorship, partnership, or S-corp is a pass-through entity with profits taxed on an individual level.
Will I have to pay business fees annually as an LLC or S-corp in West Virginia?
Both LLCs and S-corps must pay fees to the West Virginia Secretary of State annually.
Do I need an attorney or accountant to set up an LLC or S-corp in West Virginia?
It is possible to form both an LLC or an S-corp on your own; however, it may be beneficial to engage the services of an attorney or accountant to make sure everything is correctly set up.
Can I buy insurance to protect my LLC or S-corp in West Virginia?
Yes, you can purchase various forms of liability insurance for your LLC or S-corp in West Virginia.
Can an LLC or S-corp own other business entities in West Virginia?
Yes, both LLCs and S-corps can own other business entities in West Virginia.
Are there annual reporting requirements for LLCs and S-corps in West Virginia?
Yes, both LLCs and S-corps must file an annual report in Virginia.
Can LLCs and S-corps have one owner in West Virginia?
Yes, LLCs and S-corps in the US are permitted to have one member.
Can an LLC or S-corp be owned by non-US citizens in West Virginia?
Yes, non-US citizens can form and own an LLC or S-corp in West Virginia.
Do LLCs and S-corps need a registered agent in West Virginia?
Both LLCs and S-corps must have a registered agent in West Virginia to represent the entity in legal matters.
Can a non-resident be a registered agent for an LLC or S-corp in West Virginia?
Yes, a non-resident of West Virginia can legally act as a registered agent for a business entity.
Can an LLC or S-corp continue even in the event of a business owner’s death or incapacity in West Virginia?
Yes, both entities can exist beyond the lifespan of their owners in West Virginia.
Are there benefits of forming an S-corp over an LLC in West Virginia?
S-corps can provide tax benefits to some small business owners in comparison to an LLC.
Can LLCs issue stock in West Virginia?
LLCs are not permitted to issue stocks.
Can S-corps have unlimited shareholders in West Virginia?
The limit for an S-corp in West Virginia is 100 shareholders.
Are LLCs required to hold annual meetings in West Virginia?
There is no legal requirement that LLCs cannot have an annual meeting.
Do S-corps need to follow the same regulatory requirements as corporations in West Virginia?
Although subject to many of the same regulations of corporations, S-corps benefit from specific tax laws related to pass-through taxation that shield them from the same guidelines.
Can an LLC member also be the registered agent in West Virginia?
Answer:Yes, they can but registered agent requires only one person for their important office, and sometimes it is best not to use an owner/manager as that raises concerns about uninterrupted representation.
Can all types of businesses convert structured into another in West Virginia?
Business entities in West Virginia may find difficulty transferring ownership between structures such as from LLCs to S-corps and vice versa.
Are LLCs or S-corps better if your West Virginia-based firm goes bankrupt?
West Virginia’s statutory law provides not much of giving priority to either sort of company in her legal resolutions.
Which entity has fewer administrative responsibilities, LLC or S-corp in West Virginia?
Limited liability companies in West Virginia exists to benefit entrepreneurs from fewer state-mandated filings and less complexity in comparison to S-corps.
Are there special exemption or benefits for LLCs or S-corps involved in renewable energy in West Virginia?
West Virginia state agencies established small business grants to promote investments in waste fossil fuels and green energy innovation in WV.

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Conclusion

Ultimately, choosing an LLC and an S-Corp in West Virginia 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 West Virginia 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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