LLCs vs S corps: Income and Tax Differences

LLCs vs S corps: Income and Tax Differences: These income and tax questions are frequently asked when individuals and partners contemplate forming a new company.  Basically, am I better off with an S-corp or an LLC?  There are several non-financial benefits (which I lean toward) in favor of the LLC over the S-corp, particularly the LLCs structural flexibility.  Many articles and blogs have been written about that subject and I will link to some of the good ones later.  For now, I wanted to address some of the more ambiguous questions about the two legal entities impacting the entity decision, namely whether the choice makes a basic tax difference for the principal owners.

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Earnouts in Sales of Businesses: Risks and Strategies.

You sell your business for cash plus an amount to be determined based on earnings or other performance measurements of the business over the next 1, 2 or several years after the sale.  This is an “earnout” and can be a very lucrative upside to a seller.  It can also be attractive to a purchaser unable (or unwilling) to fully calculate the value of the business being purchased at the time of sale.

It also has obvious risks, particularly to a seller.  Commonly, the earnout involves a seller who will continue to participate in the business after the sale under some sort of employment or consulting arrangement with the new owners.  This theoretically gives a seller an ability to have some control over the post-closing success of the business, while giving the purchaser a way to incentivize (and control) the seller’s employment or consulting performance.

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