October 15, 2025
As exciting as starting a new business can be, it’s a milestone that requires you to make several decisions. Alongside the obvious ones, like where to base your business and what products and services to offer, you must also consider your business structure. LLC vs. S Corp, which is right for you? You may find the information you need to make an informed decision below.
Understanding the Basics: What is a Business Entity?
A business entity describes the financial and legal structure of an organization established to conduct business. There is a range of business entity types to choose from, such as sole proprietorship, partnership, corporation, and limited liability company (LLC). The one you choose determines the legal structure of your business, the owners’ liabilities, and the taxation structure.
All About the LLC (Limited Liability Company)
A limited liability company, more commonly known as an LLC, is a business structure that combines features of a sole proprietorship, corporation, and partnership. That’s why when comparing S Corp vs. LLC, there are several similarities.
Key Benefits of an LLC
When you form an LLC, you’ll be afforded a range of advantages compared to other business structures. Perhaps the main benefit is that the owners’ personal assets are generally protected from legal claims and debts against the business.
However, business owners also appreciate the management and ownership flexibility, as well as broad taxation options with the IRS.
Potential Downsides of an LLC
Choosing a business structure requires you to have all the facts. While there are many advantages associated with forming an LLC, there are also a few disadvantages. For example, as you can’t issue stock, there is limited growth potential. What’s more, LLCs cost more to operate compared to sole proprietorships. LLCs also have a limited lifespan if a member leaves or dies.
All About the S-Corp (S Corporation)
An S corporation, also called an S Corp, is a business entity type where the income, credits, losses, and deductions are passed on to the personal tax returns of its shareholders.
Business owners who want to choose S Corp as a business entity type must meet a range of specific IRS criteria and comply with filing and operational requirements.
Key Benefits of an S-Corp
According to the IRS, having an S Corporation enables you to avoid double taxation by passing income, losses, deductions, and shareholders’ on to the shareholders’ personal tax returns. Like other business entities, the S Corp structure also typically protects personal assets from business debts and lawsuits.
Potential Downsides of an S-Corp
In a side-by-side comparison of S Corp vs. LLC, it’s clear to see that S Corps won’t suit every business owner. There can be increased administrative costs if you need to pay for a payroll system and state franchise taxes. You may also need to have a consistent cash flow to cover payroll and tax-related costs.
What’s more, there can be more time involved in running an S Corp due to the IRS’s requirements for more reporting.
Head-to-Head Comparison: LLC vs. S-Corp
When reviewing business entity types, such as LLC vs. S Corp, there are bound to be significant differences. Compare liability protection, taxation, and the ownership and management structure to help you make an informed choice about your preferred structure.
Liability Protection
In terms of liability protection, the owners/members of an LLC are typically not personally liable for business debts. S Corps are also generally afforded the same limited liability protection.
However, if owners/members of an LLC co-mingle their assets, ignore formalities, and don’t maintain separate books, there’s potential for the corporate veil to be pierced. The same goes for S Corps if they fail to comply with IRS requirements, such as maintaining records and holding meetings.
Taxation Differences
If you’re a single-member LLC, you’re taxed as a disregarded entity. If you’re a multi-member LLC, you’re taxed as a partnership.
An S Corp is described as a tax election. Both LLCs and S Corporations avoid double taxation.
LLCs have flexible restrictions and limitations in that they can choose to be taxed as a C Corp, S Corp, or default pass-through, if eligible. In contrast, an S Corp must satisfy all eligibility rules to retain its pass-through status.
Ownership & Management Structure
The ownership and management structures of LLCs and S Corps are very different. LLC is a legal entity or structure created under state law, and S Corp is a tax election applied to a qualifying LLC or corporation. To become an S Corp, you must first form a corporation or LLC under state law before filing the S election at the federal level.
How both business entities operate differs due to the rigidity of S Corps and the flexibility of LLCs. LLCs can be member-managed or manager-managed, and there’s no requirement to have a board of directors or corporate officers unless an operating agreement mandates it.
In contrast, S corporations must have a board and officers. They must also adopt bylaws and hold director and shareholder meetings.
In terms of recordkeeping, it’s good practice to have meetings and maintain records in your LLC, but there are fewer, less stringent requirements. However, there are several required formalities for S Corps, such as bylaws, regular meetings with minutes and resolutions, and detailed records.
How to Make the Right Choice for Your Business
Choosing a business structure to suit your unique needs and preferences is never easy. Although with the right information, the decision-making process can be much easier.
For simplicity and flexibility in a small operation, an LLC is often easier for the average business owner to manage. However, if your business generates enough profit to allow for meaningful tax advantages, electing for an S Corp status within an LLC or corporation may be worthwhile. An S Corp may also be more appealing if you anticipate having many owners or raising capital.
Ready to Form Your Business? We Can Help.
After exploring S Corp vs. LLC, are you ready to form your new business? We can help. Here at Nue Biz, we will answer your questions about forming your business, help you navigate state requirements, and assist with annual compliance. Contact us today.
We are proud to be an independent filing service providing businesses with the tools, support, and resources needed to launch their new business and maintain its compliance. Nue Biz is not an attorney nor tax professional, please contact a professional regarding questions related to taxation and legal recommendations.
Nue Biz is an independent filing service dedicated to helping customers set up their businesses. We do not provide legal or financial advice; please consult a professional for specific guidance.
