The Difference Between An S Corporation and a Limited Liability Company

In researching the various types of business structures available for entrepreneurs and small business owners, one inevitably comes across both S Corporation and the Limited Liability Company (LLC).Both S Corporations and LLCs offer liability protections, meaning personal assets of owners are shielded from company liabilities, and the owners of companies cannot be held personally liable for the company’s debts.

Determining the type of legal structure for a new business depends on individual circumstances.S Corporations and LLC are similar in that they are both pass through entities.This means that the income of these companies are passed through to their owners, and reported on the owner’s individual income tax returns.However, they are different in other areas such as ownership restrictions, employment tax structure, profit sharing and other operational issues.

For example, an S corporation has restrictions on the number and status of shareholders, but there are virtually no limitations on the ownership of an LLC.An LLC can distribute profits in any number of ways; an S Corporation must distribute profits according to the ratio of stock ownership.The S corporation offers employment tax flexibility that the LLC may not offer.

Choosing the right structure for your business can be an overwhelming task.It is important to consult with a legal and tax professional to help find the right situation for your business.