LLC vs. S-Corp: Which is Right for Your Business?

Choosing between an LLC and an S-Corp

When starting a business, one of the first and most critical decisions you'll make is choosing the right legal structure. Two of the most common options for small business owners are the Limited Liability Company (LLC) and the S Corporation (S-Corp).

What is an LLC?

A Limited Liability Company (LLC) is a business structure that protects its owners from personal responsibility for their debts or liabilities. Limited liability corporations are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship.

What is an S-Corp?

An S corporation, also known as an S subchapter, refers to a type of corporation that meets specific Internal Revenue Code requirements. The requirements give a corporation with 100 shareholders or fewer the benefit of incorporation while being taxed as a partnership.

Key Differences

• Taxation: LLCs offer pass-through taxation, while S-Corps can potentially save on self-employment taxes.
• Ownership: LLCs have flexible ownership, whereas S-Corps have restrictions (e.g., U.S. citizens/residents only, max 100 shareholders).
• Formalities: S-Corps generally require more formalities, such as bylaws and regular meetings, compared to LLCs.

Ultimately, the best choice depends on your specific business goals, revenue, and future plans. Consulting with a financial advisor is always recommended.