The Differences Between S-Corps and LLCs

Exploring the Nuances: A Detailed Comparison of S-Corps and LLCs

When starting a business, one of the critical decisions entrepreneurs face is choosing the right business structure. Two popular options are the S-Corporation (S-Corp) and the Limited Liability Company (LLC). Each offers unique benefits and limitations, impacting everything from taxation to ownership flexibility. This article aims to delineate the key differences between S-Corps and LLCs to aid business owners in making an informed decision.

Formation and Maintenance

An LLC is favored for its simplicity in both formation and maintenance. The process involves filing Articles of Organization with the state and creating an Operating Agreement. In contrast, forming an S-Corp is more complex, starting as a C-Corp and then obtaining S-Corp status through the IRS. S-Corps require adhering to more formalities, such as issuing stock and holding regular meetings.

Ownership and Stock

Ownership flexibility is a significant differentiator. LLCs have no restrictions on the number or types of owners, allowing a diverse range of entities to be members. S-Corps, however, are limited to 100 shareholders, all of whom must be U.S. citizens or permanent…