Frequently Asked Questions

What are the restrictions on ownership for S corporations and LLCs?

When it comes to ownership restrictions, S corporations and LLCs have distinct rules. S corporations are limited to a maximum of 100 shareholders, while LLCs can have an unlimited number of members. Furthermore, the IRS stipulates that non-U.S. citizens can be members of LLCs, but they cannot be owners of S corporations. In terms of formalities, S corporations require the adoption of bylaws, issuing of stock, conducting annual shareholder meetings, and keeping meeting minutes. On the other hand, LLCs only recommend the adoption of an operating agreement (not required in most states), issuance of membership shares (referred to as distributive shares), having periodic or annual meetings, and documenting all significant decisions. Transferability of ownership also differs between the two. S corporation stock can be freely transferred, whereas the ownership in an LLC is usually not freely transferable and must be approved by a majority (or all) members in the LLC. This is generally laid out in the LLC Operating Agreement.