One of the most consequential decisions for any new business owner is choosing the right legal entity. Get it wrong, and you may face unnecessary taxes, personal liability, or headaches when it comes time to bring on investors or sell.

What Is an LLC?

A Limited Liability Company (LLC) is a flexible business structure that provides personal liability protection while avoiding corporate formalities.

• Pass-through taxation: Profits pass through to members' personal returns

• Flexible management: Members can manage directly or appoint managers

• Few formalities: No annual meetings or complex record-keeping required

• Self-employment taxes: Active members pay SE tax (15.3%) on all profits

What Is an S-Corporation?

An S-Corporation is a tax election allowing a corporation to be taxed as a pass-through entity.

• Salary + distribution split: Owner-employees pay a reasonable salary (subject to payroll taxes) and take remaining profits as distributions — not subject to SE tax

• Restrictions: Limited to 100 shareholders, all U.S. citizens or residents

• More formalities: Annual meetings, minutes, and bylaws required

The Tax Savings Argument

With $150,000 net profit: as an LLC, you pay ~$22,950 in SE tax. With an S-Corp and an $80,000 salary, you may save $10,000+ annually. However, S-Corp status adds payroll and accounting costs. Savings typically make sense above $50,000–$80,000 in net profits.

Massachusetts-Specific Rules

Massachusetts imposes its own taxes on both LLCs and S-Corps. Massachusetts S-Corps pay an 8% corporate excise tax on Massachusetts income — consult both an attorney and CPA before deciding.

How Sofio Law Can Help

We help South Shore entrepreneurs choose the right structure, draft operating agreements, register with the Commonwealth, and protect personal assets.

Schedule a free consultation to discuss the right structure for your business.