S Corporations vs. LLC's
S corporations and LLCs possess similarities: They both offer their owners limited liability protection and are both pass-through tax entities. Pass-through taxation allows the income or loss generated by the business to be reflected on the personal income tax return of the owners. This special tax status eliminates any possibility of double taxation for S corporations and LLCs. That's where the similarities end.
The ownership of an S corporation is restricted to no more than 75 shareholders, whereas an LLC can have an unlimited number of members (owners). And while an S corporation cannot have non-U.S. citizens as shareholders, an LLC can. S corporations cannot be owned by C corporations, other S corporations, many trusts, LLCs or partnerships. LLCs are not subject to these restrictions. LLCs are also more flexible in distributing profits than S corporations. S corporations can only have one class of stock and your percentage of ownership determines the percentage of pass-through income. On the other hand, an LLC can have many different classes of interest, and the percentage of pass-through income is not tied to ownership percentage. The pass-through percentage can be set by agreement of the members in the LLC's operating agreement.
The advantages and flexibility of a general corporation over either of these entities usually outweigh the advantages of a LLC or S corporation. For those situations which an LLC or S Corp make sense exit strategies should also be in place when deciding which entity to form.
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**Information on this site is not intended as and shall not be construed to be LEGAL ADVICE. When dealing with legal matters, you should always avail yourself of the services of a qualified member of the Bar Association.
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Silver Shield Services, Inc.
3315 Hwy 50
Silver Springs, Nevada 89429
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**Information on this site is not intended as and shall not be construed to be LEGAL ADVICE.
When dealing with legal matters, you should always avail yourself of the services of a qualified member of the Bar Association.