A Limited Liability Company (LLC) and an S-Corporation offer many similar benefits, but there are also several key differences that are important to understand and consider in choosing the right structure for your specific business activity.
CorpNet® can help: Whether you choose to form an LLC or an S-Corporation, CorpNet® can help you complete the process saving you both time and money with service that is fast, reliable and affordable… And remember, our services are backed by a 100% satisfaction guarantee. We make everything easy for you so that you can focus on what you do best – running your business! Learn about the differences of an S-Corporation vs an LLC below:
- Limited Personal Liability
Both structures limit liability to the amount shareholders or members invest in the company. Therefore personal assets, including homes, cars, savings and investments, are protected from the liabilities and risks of the business.
- Tax Flexibility
Both structures provide pass through tax treatment and avoid an entity level tax. This means that business income or losses are reported on the individual tax returns of the shareholders or members. LLC’s also offer the choice to be taxed as a separate Corporate entity, whereas S-Corporations are defined by their election to not be taxed as a Corporate entity.
- Ability to Raise Capital
Both structures allow a business to borrow money and sell equity to raise capital. S-Corporations can issue shares of stock, while LLC’s can sell interests in the company in accordance with its Operating Agreement. Because of the limitation on the number of shareholders an S-Corporation may have (100), it may be more difficult to use equity to raise capital as you grow.
- Unlimited Duration
Both structures continue indefinitely, unless they are dissolved.
- Number and Type of Owners
A big difference of an LLC vs an S-Corp is that LLCs do not have the same restrictions on ownership. S-Corporations must be owned by individuals (or trusts) that are U.S. citizens or residents, and there must not be more than 100 shareholders. LLCs may be owned by other LLCs or corporations and the owners do not have to be U.S. citizens or residents. There may be an unlimited number of owners in an LLC.
- Tax Treatment and Profit Distribution
An S-Corporation does not allow for the flexible distribution of profits and losses like an LLC. In an S-Corporation, dividends are paid to shareholders in proportion to share ownership. LLCs may follow the IRS’s special allocation rules to agree to allocations of profits and losses that vary from ownership interests.
- Corporate Structure & Formalities
The advantage that LLCs have over corporations in the area of corporate formalities also apply to S-Corporations. In fact, in forming an S-Corporation, small business owners not only have to make the filings and comply with the ongoing requirements for maintaining a corporation, they also have to make an additional filing with the IRS to elect S-Corporation status and receive pass-through tax treatment. For LLCs, pass-through tax treatment follows automatically upon filing the Articles of Organization.
- State Filings
LLC’s do still require State Filings, though they are different from those for S-Corporations. Articles of Organization must be filed with the Secretary of State to form an LLC and the members of the LLC are required to enter into an Operating Agreement that governs how the LLC will be operated.
Our fees for incorporating or forming an LLC start at $79, plus state filing fees. This is substantially lower than what an attorney might charge for the same service. Relative to other online document filing services, CorpNet® stands out above the rest. It is a privately owned company whose founders are both attorneys. They are well supported by an experienced staff of document specialists, who collectively, have filed over a hundred thousand documents in recent years. CorpNet® also offers a 100% satisfaction guarantee.