Quick Comparison: LLC vs. C-Corporation
The entities are taxed differently.
By default an LLC is a pass-through tax entity, meaning that the income is not taxed at the company level (however, a Multi-Member LLC is still required to complete a separate tax return). The income or loss as shown on this return is 'passed through' the business entity to the individual members, and is reported on their individual tax returns.
C-Corporation is a separately taxable entity, and pays tax on the income prior to any dividend distributions to shareholders. If and when corporate earnings are distributed to shareholders in the form of dividends, the corporation does not receive the reasonable business expense deduction, and dividend income is taxed as regular income to the shareholders.
The entities differ in their structure.
LLCs are less rigid in their structure than corporations, so you have more flexibility in adapting the LLC to your unique business. The Operating Agreement of an LLC can be structured in a limitless number of ways.
Formality:
A corporation is a formal entity with officers and directors (at least one of each) required. An LLC, on the other hand, can be 'member managed' and run in a less formal way. For small, start-up businesses, less formality means you can focus on making money rather than administrative work.
Quick Comparison: LLC vs. S-Corporation
Difference in income allocation:
While S-Corporation special tax status eliminates double taxation, it lacks the flexibility of an LLC in allocating income to the owners. An LLC may offer several classes of membership interests, while an S-Corporation may only have one class of stock.
Ownership restrictions:
Any number of individuals or entities may own interest in an LLC. Also, LLCs are allowed to have subsidiaries without restriction. Ownership interest in an S-Corporation is limited to no more than 100 shareholders. On top of that S-Corporations cannot be owned by C-Corporations, other S-Corporations, many trusts, LLCs, partnerships, or non-resident aliens.
Self-Employment Taxes:
One advantage of S-Corporation is the way self employment taxes are calculated. S-Corporation owners employed by the company must receive salary, and their self employemnt tax is caluclated based on that salary (this is true with the exception of S-Corporations based in New York City). Owners of LLC, on the other hand, pay self employment taxes based on all member distributions they receive.
Quick Comparison: C-Corporation vs. S-Corporation
All corporations start as C-Corporations and are required to pay income tax on taxable income. An C-Corporation becomes a S-Corporation by completing and filing federal form 2553 with the IRS.
Taxation:
An S-Corporation's net income or loss is 'passed-through' to the shareholders and are included in their personal tax returns. Because income is NOT taxed at the corporate level, there is no double taxation as with C corporations.
Difference in income allocation:
Subchapter S-Corporations, as they are also called, are restricted to having no more than 100 shareholders, and cannot be owned by C-Corporations, other S-Corporations, many trusts, LLCs, partnerships, or non-resident aliens.
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