S Corps and LLCs have similar characteristics:

• Owners are protected by limited liability in both entities. Owners are not personally liable for business debts and responsibilities.
• Each one is an individual entity instituted by state government documentation.
• Each one acts as a tax filter and files a business tax return. The business profits and losses are passed thru to the owners, and reported on their individual tax returns.
• Each one must file state required annual reports, and pay annual fees.

S Corps and LLCs have different characteristics:

The IRS puts restrictions on S corporation ownerships, whereas LLCs are unrestricted. IRS restrictions include, but are not limited to:

Differences in Ownership

• An LLC may have unlimited members (owners), whereas an S Corp may have only 100 shareholders (owners).
• An LLC may have non-US resident members, whereas S Corps may only have resident shareholders.
• S Corps may not be owned by C Corps, other S Corps, LLCs or particular trusts, whereas LLCs may be owned by anyone.
• There aren't any restrictions on LLCs subsidiaries.

Differences in Formalities

• LLCs perform menial internal formalities. They are instructed to implement an agreement of operation, issue shares to members and document mandatory annual meetings to be attended by managers and members. They must also document big decisions implemented on behalf of the entity.
• S Corps must implement extensive internal formalities. These include instituting bylaws, issuing stock, calling the first meeting of shareholders and directors and continuously calling for annual meetings. S Corps are also required to record the minutes of these meetings.

Differences in Management

• LLC management may be performed by members, very similar to a partnership management. Management may also be performed by managers very similar to the management of a corporation, since the members do not participate in the day to day decision making process.
• S Corps utilize officers and directors. The corporation's business is directed by a board which handles all the big decisions. This board of directors elects officers to handle the corporation's daily business.
• S Corps have an infinite existence, but an LLC usually has a measured time of existence. Most states' laws demand a date for dissolution be listed in the Articles of Organization. The death or resignation of a member can initiate the dissolution of an LLC.
• S Corp stock can be transferred easily once the traders are in compliance with the restrictions of ownership implemented by the IRS. In an LLC, an owner usually must gain the approval of the other members before a transfer can be made.
• S Corps can minimize self-employment taxes in comparison to LLCs. Consult your tax advisor or CPA for possibilities.

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