What are the differences between the S Corporation and the LLC?
Differences
Member/owner restrictions
An S Corporation is not allowed to have more than 100 owners (shareholders). If you want to have more owners, you have to form another type of entity, such as a C Corporation or an LLC. The LLC can have an unlimited amount of owners (members).
Formation requirements
When it is time to form the company, there are noticeable differences between an S Corporation and an LLC. If you want to set up an S Corporation, you will need Articles of Incorporation, Organizational Board Resolutions, Stock Ledger, Stock Certificates, Bylaws and the IRS & State S Corporation election. (The IRS & State S Corporation election is not required to form a C Corporation, because the IRS & State S Corporation election is what turns a C Corporation into an S Corporation.) If you instead chose to form an LLC, the amount of required papers is much smaller and you will only need an Operating Agreement and Articles of Organization / Certificate of Formation. The LLC form was created to be suitable for small business owners and is therefore less demanding when it comes to paperwork.
Management and control
An S Corporation is required to have a Board of Directors with overall management responsibility and Officers with day-to-day responsibility. The LLC is a much more flexible company form, since the Operating Agreements will determine how the company should be managed and controlled. It is for instance possible to choose one of the members (owners) to be responsible for day-to-day management.
Capital
When an S Corporation is formed, the stocks will be sold to interested buyers to bring in assets to the company. (Unlike the C Corporation, an S Corporation can only sell one class of stock.) When an LLC is formed, the most common way of bringing in assets to the company is to receive it from members (owners) in the form of money, property or services.
Similarities
Limited liability
Both the S Company and the LLC offers limited liability for its owners. The owner of an LLC is referred to as a member while the owner of an S Company is a shareholder, but they both have limited liability only. When it comes to personal liability, there are no major differences between the LLC and the S Company. Minor differences do however exist and it can therefore be a good idea to consult a legal expert or similar.
Taxation
