What is the difference between LLC and S Corp?

Both an LLC (Limited Liability Company) and an S Corporation offer limited liability protection, which keeps owners' personal assets distinct from the debts and obligations of the company. They vary, however, in their management structure, taxation, and compliance requirements.

An LLC is widely chosen because of its flexibility. The owners, or members, can manage the business themselves or employ managers. The profit distribution in an LLC is also flexible and does not have to follow the ownership percentage. Compliance is comparatively easier, with less formality, thereby enabling businesses to run their affairs smoothly.

An S Corporation is a federal tax classification available to qualifying corporations and LLCs, not a separate legal entity type. Its main advantage is pass-through taxation, in which income and losses pass through to the individual tax returns of the shareholders, avoiding double taxation at the corporate level. However, S Corporations are more restricted in having a limit on the number of shareholders, restrictions on who can be a shareholder, and the requirement to distribute profits and losses solely in proportion to shareholding.

The choice between an LLC and an S Corporation depends on your business objectives, ownership interests, and tax planning. An LLC offers simplicity and flexibility, while an S Corporation can provide tax advantages if you meet the eligibility criteria and are ready to comply with more rigorous compliance regulations.

For businesses considering the right structure,One IBC USA offers incorporation and advisory services to assist you in making the decision and bringing you into compliance with US legislation.