S Corp vs LLC - Deciding Which Structure is Right for You and Your Business
Many small business owners will find themselves deciding between forming as an S-corporation or limited liability company. While S-corporations and LLCs are both legal entities that offer their owners liability protection and the advantage of pass through taxation there are some important differences.
Some Important Differences Between LLCs and S-Corps
Things to consider when you compare the LLC vs S Corporation
S Corps can only have 100 shareholders - LLC's have no limit on the number of members
An S Corp cannot be owned by a C corp, another S corp, LLC's or partnerships - LLC's can be
An S Corp's shareholders must be US residents - LLC's members can be non US residents
S Corp's are required to hold annual meetings of shareholders and directors - LLC's are not
S Corp's have directors & must elect officers - LLC's can be managed or run by it's members
S Corp's may hold an advantage over LLC's when it comes to handling self-employment taxes
The table below will help you compare the differences between the S-Corp versus LLC
Limited Liability Company
Must execute certain formalities in order to maintain corporate status such as holding annual meetings of shareholders and directors
Not subject to such formalities. Does not have to hold annual meetings
Limited to 100 shareholders who must be citizens or legal residents of US Owners can not be corporations, LLCs or partnerships
Can have one or many members who are not required to be citizens or residents of US Members can be corporations, LLCs or partnerships
Ownership is evidenced by shares of stock S-corps are restricted to one class of stock
Evidence of Ownership
Ownership is evidenced by membership Interest. There are no class restrictions
Shares of stock are easily transferable
Transfer of Ownership
Transfer of membership interest may be subject to restrictions as outlined in operating agreement
Shareholders elect directors to manage entity Directors appoint officers to run daily operations
The members can set up the structure of an LLC as they see fit
Perpetual Existence - can exist beyond death or withdrawal of shareholders
May be subject to state requirements An event such as death or withdrawal of a member may trigger dissolution
S-Corps file Form 1120S Shareholders are given a Schedule K-1 so they can report income loss on their personal tax returns
1 member LLCs file as sole proprietor IRS Form 1040 - Schedule C
LLCs with more than 1 member file a partnership return - IRS Form 1065 with members being given schedule K-1
Want more info on the different business structures? You can compare business structures and get additional information here C Corp vs S Corp vs LLC
Decided what you want and are ready to form a business? We make it easy. Simply fill out our online order form for an S Corp or LLC and our experienced professionals will handle the rest. You can feel confident in knowing that the Start Biz Here staff has been incorporating companies for just over ten years. Plus we guarantee your satisfaction or we will refund our service fees!
You must file a Federal Sub S Election Form with the IRS in order to obtain S Status for federal tax treatment purposes. In addition some states require the filing of a seperate, state specific s election form for s status to be recognized on the state level.
Note: Every business situation is different that is why we suggest consulting with an accountant or attorney when deciding which business structure is best for you and your business situation.