What is the difference between an S-corporation and LLC?


Quick Answer

An S corporation is an entity separate from the individuals who own the corporation, while an LLC is an entity where the losses and profits are passed through the business to the owners, according to the U.S. Small Business Administration. Businesses can be classified as both an S corporation and an LLC.

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Full Answer

An additional primary difference between an LLC and an S corporation is that the process to establish a business as an LLC requires fewer startup costs and less forms for business registration, explains the U.S. Small Business Administration. Businesses designated as an LLC are not required to keep minutes and engage in formal meetings, while all corporations, including an S corporation, are required to follow these procedures.

With an LLC business classification, owners of the company report profits and losses on tax returns versus on the LLC tax return. However, the limit of liability for an owner is limited to the owner or member's investment in the company. Shareholders of an S corporation also have limited liability, but the liability protection is never fully protected as plaintiffs in a lawsuit may be able to pursue personal assets of shareholders, notes the U.S. Small Business Administration. An LLC possesses a business structure that is similar to a general partnership or sole proprietorship, while an S corporation is established as a corporation in the state where the headquarters is located.

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