How does an S corporation differ from a limited liability company?
A Limited Liability Company (LLC) is similar to an S Corporation in some ways. Generally, business owners form an LLC rather than an S Corporation if one or more of the following situations apply:1) ANY owner of the company is another business entity or a non-resident alien (a person is a non-resident alien if he or she is neither a resident nor a citizen of the United States). 2) The company will be owned by more than 75 persons. 3) The company plans to issue more than one class of stock (for example, special allocations of profits and losses will be made that are not proportionate to the equity percentage of each owner). 4) The owners desire to use business debt (money borrowed by the company) to increase their tax basis. 5) The state where the business is located imposes an entity level income tax on the profits of an S Corporation and does not impose such a tax on the profits of an LLC. Generally, the LLC is treated like a partnership for tax purposes and there is no entity level t
While LLCs and S-Corporations are both taxed as so-called “pass through” entities, the S-Corporation is strongly discouraged for the ownership of real estate because S-Corporation shareholders may not be able to maximize their depreciation deductions. The reason for this potential pitfall is because the amount of tax loss that may be used by a shareholder or a LLC member is limited to the member/shareholder s tax basis. The tax basis of shareholders and LLC members is computed very differently. For a LLC member, tax basis includes debt, but debt is not included in the calculation of tax basis for a shareholder of a S-Corporation. In addition, while S-Corporations are limited to a single class of stock, there may be more than one class of economic interest held in the LLC, thus permitting special allocations of income, loss and cash flow among the members. Finally, while an S-Corporation cannot include more than 75 shareholders, and permitted shareholders may not include corporations, p
