Frequently Asked Questions
What are the key considerations when deciding between forming an LLC or an S corporation?
When deciding between forming an LLC or an S corporation, there are several key considerations to keep in mind. Both business structures offer limited liability protection and operate as pass-through tax entities, but there are significant differences in areas such as ownership, management, length of existence, transferability, and self-employment tax. Ownership restrictions are more stringent for S corporations, which cannot have more than 100 owners and cannot include non-U.S. citizens. LLCs, on the other hand, can have an unlimited number of members, including non-U.S. citizens. The formalities for maintaining an S corporation are also more extensive than those for an LLC. In terms of management, LLC owners have the flexibility to operate as a member-managed or manager-managed entity, while S corporations have a more structured management system with directors and officers. The length of existence also differs, with S corporations potentially lasting forever, while LLCs may have a specified dissolution date. Transferability of ownership is another key consideration. S corporation stock can be freely transferred, while the transfer of ownership in an LLC usually requires approval from a majority or all members.
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