S Corp vs LLC

In the past, S corp business structure was the only way a business owner could have both personal liability and pass through taxation. Nowadays an LLC does the same job or even better than S corp. The debate of the S Corp vs LLC is gaining more and more notice. So, to help you decide between  S corp vs LLC, we are going to compare the pros and cons of S corp vs LLC. We will outline the difference between an S corp and an LLC.

S Corp vs LLC compared

Before the introduction of an LLC, S corporation is among the most popular way for business owners to protect their personal liability and still have pass through taxation of business income. Comparing an S corp vs LLC, the LLC is often more attractive than an S corp. Benefits of an LLC vs S corporation are numerous as discussed below.

Disadvantages of S corp vs LLC

S corp is far more difficult to form than an LLC

It is very involved to form an S corporation versus an LLC. To form an S corporation, the owner must first file to incorporate a C corporation. Then the C corporation can elect to become an S corp for tax purposes. Much more paperwork is needed to form a sub chapter S corp vs. and LLC.

It is harder to run an S corp v s and LLC

As a corporation, an S corp is more involved to run than an LLC. There are corporate rules an S corp must abide by including stock issuance, election of officers, board meetings, minutes, and many other rules. In comparison, an LLC is easy to set up and easy to run because LLCs are not bound by rules of corporations. That means no unnecessary meetings!

S corp ownership restrictions vs LLC

A member of an LLC can be anyone whereas shareholders of an S corp have to be US citizens or residents. That means shareholders of an S corp cannot sell their shares to persons who are not US citizens or residents or the S corporation tax status will be compromised.

S corp can only have one class of stock

Distribution of profits and losses to shareholders are also restricted in the S corp vs LLC.

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