What's the Difference Between LLC and S Corp?

An LLC and an S Corporation (S Corp) are both popular types of business entities, but there are significant differences between the two.

1. Legal structure: An LLC is a hybrid business entity that combines features of a corporation and a partnership, while an S Corp is a corporation that has elected to be taxed as a pass-through entity.

2. Liability: Both LLCs and S Corps provide limited liability protection for their owners, meaning that their personal assets are generally protected from the company's liabilities.

3. Taxes: An LLC is a pass-through entity, meaning that the business income is passed through to the owners, who report it on their personal tax returns. S Corps are also pass-through entities, but they offer some additional tax advantages. S Corp shareholders are not subject to self-employment taxes on the company's profits, unlike LLC owners who are subject to self-employment taxes on all business profits.

4. Ownership and management: An LLC has members who own the company and can manage the business themselves or appoint managers to run it. In contrast, an S Corp has shareholders who own the company and a board of directors who manages the company's affairs.

5. Formalities: LLCs are generally less formal and require fewer filings and paperwork than S Corps. S Corps must file annual reports, hold regular meetings, and comply with other formalities to maintain their status.

Overall, the choice between an LLC and an S Corp depends on the individual's goals, the nature of their business, and other factors. It is recommended to consult with a business attorney or accountant to determine the best structure for your business.