For many entrepreneurs, limiting their liabilities is an important factor when establishing a business. Because of this, most start with a comparison of a limited liability company (LLC) and an S corporation. Similarities There are many similarities between an LLC and an S corporation. Pass-Through. Both the LLC and S corporation are typically used because they are pass-through tax entities. For pass-through entities, income taxes are not typically filed at a business level. Any profits or losses felt by the company, however, are “passed-through” and filed with their owners’ personal returns. In other words, if taxes are owed, they are paid by the individual, not the business. (Note, however, that S corporations are required to file business tax returns. LLCs only need to if they are owned by multiple individuals.) Protection. Both types of businesses protect their owners. Through their limited liability protection, both types render their owners not personally responsible for any debts or liabilities related to the businesses. Separate Entities. LLCs and S corporations establish separate entities for their owners. This is what creates the legal barrier that prevents owners from being personally responsible for debts and liabilities. Once the business is filed with the state, the inherent laws and regulations become viable. For LLCs, this same separation of entities applies to series LLC versions as well. Series LLCs enable a company to divide its assets between different, sub-companies. Legally, under a series LLC, each sub-company’s assets are protected as if they were the only entity. State Requirements. Both a LLC and an S corporation are subject to state requirements. This can include filing requirements, related fees, and other state-mandated regulations. Differences However, there are some significant differences between LLCs and S corporations. Formalities. S corporations have several internal formalities that must be fulfilled in order to maintain their limited liability. Bylaws, stock issuance, meetings and meeting minutes are all required on the part of an S corporation. This is not so for a LLC or any of its series. (The Internal Revenue Service (IRS), however, does recommend that LLCs have an operating agreement, member shares, and annual meetings. They also recommend LLCs document all major decisions.) Management. An S corporation is required to have a board of directors and officers. For an LLC, however, owners can choose to manage their business or they can elect to hired an outside person to act as manager. Ownership. The IRS has several restrictions for S corporation ownership. For example, an S corporation cannot have more than 100 owners or shareholders. In addition to this, all shareholders or owners must be US citizens or residents. They may not be owned by LLCs, partnerships, C or S corporations, or many types of trusts. None of this is true for LLCs. In fact, not only can LLCs have an unlimited number of owners, they are also allowed to have unlimited subsidiaries or series. Series LLCs A series LLC has the same regulations as that of a regular LLC. Therefore, the similarities and differences above are equally as applicable to a series LLC. At Royal Legal Solutions, our professionals want to keep you, your business assets, and your hard-earned profits safe from lawsuits and liabilities. Contact us today to discuss the best solution for all your business needs.