Limited Liability Company (LLC) vs. Sub-Chapter S Corporation (S Corp) What is the difference between an LLC and an S Corp? When choosing to incorporate, the most common decision smaller businesses face is which type of corporation to form. Here is a comparison between LLCs and S-Corporations.
LLC formation came into its own at the end of 1996 when the “check-the-box” taxation regulations were passed and LLCs were allowed to enjoy, among other things limited liability, flexibility of management, and the option to elect pass-through taxation. A limited liability company is a hybrid type of legal structure that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. The "owners" of an LLC are referred to as "members." Depending on the state, the members can consist of a single individual (one owner), two or more individuals, corporations or other LLCs. Unlike shareholders in a corporation, LLCs are not taxed as a separate business entity. LLC members report profits and losses on their personal federal tax returns, just like the owners of a partnership would.
When forming an LLC there are some general principles one must adhere to per State.
First when choosing a name for your LLC you need to follow three rules. One it must be different from an existing LLC in your state. Two it must indicate that it's an LLC (such as "LLC" or Limited Company"). And three it must not include words restricted by your state (such as "bank" and "insurance"). Your business name is automatically registered with your state when you register your business, so you do not have to go through a separate process. In the eyes of the federal government, an LLC is not a separate tax entity, so the business itself is not taxed. Instead, all federal income taxes are passed on to the LLC's members and are paid through their