What is the difference between an S Corp and an LLC?

S Corporation Taxes. If a business qualifies as an S Corporation, the tax difference between an LLC and S Corp is a bit more nuanced. Both an LLC and an S Corp has flow-through taxation (no double taxation). Keep in mind that an LLC’s distribution of profits are subject to an employment tax, whereas an S Corp’s dividends are not.

Are all LLCs the same?

Not every LLC is the same. There are several different types of LLCs that you can form, based on factors like ownership, location, profession, and more. Single-Member LLC — As the name implies, these LLCs have one single owner. For tax purposes, the IRS treats SLLCs the same as a sole proprietorship.

What is the difference between a corporation and a limited liability company?

A corporation also exists in perpetuity separate from the owners, meaning that a corporation remains in existence even when an owner leaves or divests from the company. A Limited Liability Company (LLC) has the freedom to distribute its ownership stake to its members without regard to a member’s financial contribution to the LLC.

S Corps and limited liability companies are often confused, as they are often discussed together, even though they are talking about different aspects of the business. An LLC is a type of business structure, while an S Corp is a tax classification.

What are the limitations of an S corporation?

Further, the S corporation cannot be owned by any other corporate entity. This limitation includes ownership by other S corporations, C corporations, LLCs, business partnerships, or sole proprietorships. 5  S Corporation Business Operations

Can an S Corp have more than one owner?

Ownership of an S Corporation The IRS is more restrictive regarding ownership for S corporations. These businesses are not allowed to have more than 100 principal shareholders or owners. S corporations cannot be owned by individuals who are not U.S. citizens or permanent residents.

What are the pros and cons of owning an LLC?

S corporations can employ their owners and pay them a salary. An LLC that is treated as a corporation can also pay owners a salary. If your LLC makes a profit after paying owners a reasonable salary, you might save money on taxes by electing S corporation taxation. LLC. Owner can be hands-off or participate in organization management