Difference Between LLC & Sub S Corporation

By Rob Jennings J.D.

Limited liability companies (LLCs) and Subchapter S corporations (S corps) have both become popular corporate forms for small business and start-up ventures, as both provide their owners, known as members in LLCs and shareholders in S corps, the protection of the limited liability shield. While many similarities exist between LLCs and S corps, these forms of corporate existence differ in several important ways.

What They Actually Are

An LLC is a special type of business entity created by state law, with a set of statutes in each state setting forth the rules of LLC creation and operation. An S corp, on the other hand, is a corporation organized under state law that files its taxes under Subchapter S of the United States Internal Revenue Code. "S corp," then, is not a specific type of business, but rather a filing status.


Although the rules regarding LLCs and corporations vary from state to state, the key elements of creation and operation for each type of entity remain similar across all jurisdictions. In general, an LLC requires its founders to file articles of organization -- and, in some states, an operating agreement -- and pay a fee. On a yearly basis, the LLC must file an annual report, which updates key company information such as addresses, names and addresses of members and managers and business activities. Corporations, on the other hand, must have a corporate charter and bylaws and may also require a shareholder agreement. Corporations are usually required to hold annual shareholder meetings during which, someone must keep minutes.

Ready to start your LLC? Start an LLC Online Now


State law may allow partnerships and corporations as well as individuals to own shares in an LLC. Nonresidents of the state and foreign citizens may be LLC members. Under the rules applicable to S corps, membership is restricted to individuals, their estates and certain trusts. Partnerships, other corporations and nonresident aliens may not own shares. In addition, S corporations are limited to 100 shareholders under current law. Many states do not apply restrictions as to the number of LLC members.

Duration and Transferability

One important point of variation between LLCs and S corps concerns the degree to which interests in each type of entity can be transferred and how long they last. While an LLC is an entity with a legal existence separate from its members, some states do not allow members to sell or transfer their interests and some states specify that the LLC terminates upon the death or bankruptcy of any member. Shares in an S corporation, however, can be sold, given away and inherited. In the event a shareholder files bankruptcy, his shares become property of the bankruptcy estate.

Ready to start your LLC? Start an LLC Online Now
S Corp vs. LLC


Related articles

Difference Between an LLC & a Corporation

The limited liability company (LLC) and corporation both establish the company as its own entity with a legal existence separate from that of its owners, who are called "members" in an LLC and "shareholders" in a corporation. Both business forms provide limited liability from suit for the torts of company employees or other members or shareholders. Despite their many similarities, however, there exist several important differences.

Taxes on a C-Corp Liquidation

When a corporation ceases its business operations, all assets owned by the company must be distributed. This process is known as liquidation and is necessary, even in cases when the corporation is being sold or converted into a different business structure. As part of every liquidation, state and federal income, payroll and capital gains taxes must be paid at both the corporate and individual levels.

Can Living Trusts Own S Corporation Stock?

An S corporation is simply an ordinary corporation chartered under state law whose shareholders have decided to make a special tax election under the Internal Revenue Code. One of the main advantages of forming an S corporation is the avoidance of double taxation. An S corporation's profits and losses are reported only on its shareholders' personal tax returns. The business itself is not required to pay taxes, unlike a typical corporation. Because of these advantages, the Internal Revenue Service has certain limitations regarding the corporations that qualify for S corporation status.

LLCs, Corporations, Patents, Attorney Help LLCs

Related articles

What Is the Difference of a Shareholder Vs. a LLC Member?

Corporate shareholders and limited liability company members both have ownership interests in the business entity of ...

Do LLCs Have to File Corporate Minutes?

Although S corporation, or S corps, provide the same limited liability protection and the same pass-through tax ...

LLC Explained

A limited liability company (LLC) is a type of company that exhibits characteristics of both partnerships and ...

Do You Issue Stock in an LLC?

Entrepreneurs have several options when determining which legal entity to use for a business. Two common structures are ...

Browse by category
Ready to Begin? GET STARTED