| If you are thinking of starting a business and trying to | | | | must not be violated or else there is a risk of loss of S |
| determine the proper legal entity, the LLC and the S | | | | status. Many S corporations have inadvertently lost |
| Corporation are probably two entities you are | | | | their S status and were faced with major tax |
| comparing. This Article summarizes the major non-tax | | | | obligations and penalties. So, there is a continuous |
| differences between the two. | | | | requirement to monitor your business for compliance. |
| S Corporation Requires an Election with the IRS | | | | In contrast, the IRS laws automatically qualify an LLC |
| Before getting into any analysis of the two, it is | | | | for the single layer of taxation without any need to |
| important to understand that the S Corporation is not a | | | | make an election or meet the laundry list of conditions |
| legal entity in the same sense that as an LLC, a | | | | and limitations. It is a great benefit to not have to worry |
| corporation or a limited partnership. An S corporation | | | | about an additional list of legal requirements as you are |
| starts its existence as a general corporation under | | | | busy running your business. |
| state law. | | | | LLC Has More Flexibility When it Comes to Operations |
| The S is not a state business organization concept so | | | | and Ownership |
| you will not find S corporation laws in your state's | | | | Because an S corporation is an actual corporation |
| business laws. Rather, it is a tax concept and a | | | | under state laws, it is subject to the same formalities |
| category under the Internal Revenue Code. Technically, | | | | and imposed legal structure requirements imposed |
| it is a status that you can attribute to your corporation | | | | under your state's corporation laws. It is well known |
| which qualifies it for a different kind of tax treatment | | | | that a limited liability company allows for a very simple |
| S Corporation Must Continually Meet Certain | | | | and easy to operate structure if desired but also has |
| Requirements | | | | the flexibility to address complex and non-standard |
| The only reason that a corporation would elect S | | | | requirements of any business. |
| corporation status is to gain a single level of taxation | | | | With an LLC, the owners can structure relationships |
| and avoid the double taxation imposed on the income | | | | and impose whatever operating requirements they |
| of a general corporation. The S corporation rules were | | | | deem necessary for their situation. This flexibility is |
| adopted long before the LLC existed as a way to | | | | more suited to the small business because it allows |
| offer the preferred tax structure to small businesses. | | | | business factors to dictate rather than one size fits all |
| But, in order to qualify, there are legally imposed | | | | legal ones. |
| conditions and requirements that must be met and | | | | |