An LLC combines liability protection with flexible taxation. For example, S-corps can only have 100 shareholders while LLCs have no limit.
LLCs offer more flexibility for real estate investments because transferring property in or out of an S-corp can create tax consequences. S-corps pass income and losses to shareholders to report on tax returns. This can provide LLC owners tax savings while retaining their LLC structure.
Overall LLCs offer flexibility while S-corps provide potential tax benefits. The structure better suited depends on specific business needs.
S Corp Requirements and Limitations
- S-corps must have a board of directors and annual meetings which LLCs do not require.
- S-corps can only have 100 shareholders.
Considering circumstances and needs will determine which structure is better.
Ownership and Distribution
An LLC is a legal entity protecting personal assets from lawsuits and debt collection related to the business.
- Members pay themselves through distributions based on their operating agreement.
- There are no owner number restrictions for an LLC.
Tax Implications
S-corps pass all income and losses to shareholders to report on their personal tax returns. This can provide tax savings for some LLC owners who choose S-corp taxation while retaining their LLC structure. Both LLCs and S-corps can use the same business insurance. Considering your specific business circumstances and needs will determine which structure is better suited.
Why would someone use an LLC instead of an S corporation?
- An LLC offers no owner number restrictions and protects personal assets from business-related lawsuits and debt collection.
- LLCs provide operational flexibility, especially for real estate, without the tax consequences linked to property transfers in S-corps.
- Members can pay themselves through distributions as outlined in their operating agreement.
Both LLCs and S-corps can use the same business insurance, but your specific circumstances and needs will ultimately decide the better choice.