LLC or S-Corp?
Choosing between an S-Corp and an LLC for your business structure? Use this checklist to determine which one fits your needs best.
1. Formation & Structure
LLC:
Easier to set up and manage.
Flexible ownership structure.
S-Corp:
Requires incorporation and filing Form 2553 with the IRS.
Ownership limited to 100 shareholders (U.S. citizens or residents only).
2. Taxation
LLC:
Default: Pass-through taxation (profits taxed on owners' personal tax returns).
Option: Elect to be taxed as an S-Corp.
S-Corp:
Pass-through taxation by default.
Potential tax savings on self-employment taxes.
3. Self-Employment Taxes
LLC:
Members pay self-employment tax on all profits.
S-Corp:
Owners only pay self-employment tax on their salaries.
Remaining profits distributed as dividends, avoiding self-employment tax.
4. Ownership & Flexibility
LLC:
Unlimited members.
Can include other businesses as owners.
S-Corp:
Limited to 100 shareholders.
Cannot have corporate or foreign owners.
5. Compliance Requirements
LLC:
Minimal reporting and formalities.
S-Corp:
More formalities (board meetings, minutes, etc.).
Stricter IRS scrutiny.
6. Profit Distribution
LLC:
Flexible; can distribute profits however members agree.
S-Corp:
Distributions must match ownership percentage.
Key Takeaways
Choose LLC for flexibility, ease of setup, and minimal compliance.
Choose S-Corp if you want to save on self-employment taxes and meet the eligibility criteria.
Still Confused? We Can Help.
At A, T, & P Legal, we specialize in business formation and provide professional legal counsel tailored to your unique needs. Whether you're leaning toward an LLC or an S-Corp, we'll guide you through the process to ensure your business is set up for success. Contact us today!
