LLC vs S Corp: Similarities and Differences

The two most popular types of corporations we help new businesses form at our incorporation websites are the LLC and S Corp (Subchapter S).

Both of these corporate entities have inherent advantages and some disadvantages. Have a look at this comparison and see if you can’t come up with a conclusion about which type of incorporation is right for your Oregon business.

Some similarities between LLC and S Corporations:

Incorporation creates separate legal entity as viewed by IRS for taxes and justice (legal) system. Offers some protection of personal assets.

Both avoid “Double Taxation”. Profits and loss can be passed through to the personal tax return prepared by the individual. With double taxation the company pays tax and the individual pays tax on the same $.

State level registration.

Some differences between LLC and S Corporations:

LLC’s can have many owners – unlimited.
vs
S Corp restriction is 100 shareholders.

LLC’s can be owned by Non-US residents.
vs
S Corporations must be owned by residents and citizens of USA.

LLC’s can be owned by other corporations or LLC’s.
vs
S Corporations cannot.

LLC’s have no mandated meetings, minutes requirements.
vs
S Corps have mandatory meetings and minutes and other administrative tasks.

LLC owners can assign roles within company as necessary.
vs
S Corporations need a board of directors and other appointments.

LLC’s are slightly more difficult to transfer ownership of.
vs
S Corps can transfer ownership easily through simple sale of shares.

LLC’s don’t have as many tax advantages.
vs
S Corps. (see accountant or lawyer for exact differences)

To summarize… if you’re planning on having new employees added and growing your company and a surge in income as time goes on you probably will be better off with a S Corporation.

The LLC has a lot of flexibility and few administrative tasks to worry about.

If you’re just starting your new Oregon business and don’t know which direction you’ll go or how much you’ll grow and you have a small number of employees (or 1), then the LLC is probably a good choice.

Please read our disclaimer before making any decision on which corporate entity is best for your business. We are not lawyers and we are not giving legal advice, just information.

In summary, while an LLC has a lot of flexibility and relatively lax regulation, an S-Corp is a very sound choice for businesses which expect a high growth, with new employees being added to the payroll and a surge in income in every quarter. Thus, if you are just starting off with a new business, and you are unsure of the potential or direction of growth, an LLC would be the best choice. In case you have a soundly mapped plan for steady growth and fresh infusions of capital investments, an S-Corp with it’s tax advantages and ability to cater to a company with a growing number off employees and complex tax returns is probably the best choice.