What are the main differences between an LLC and an S corporation?
An LLC has more operating flexibility and fewer corporate formalities than an S corporation. For example, an S corporation cannot have more than 100 stockholders and must hold both periodic director’s meetings and an annual meeting of stockholders. However, owners of an S corporation may be subject to fewer taxes than LLC owners.
Although an S corporation shares the same tax characteristics as an LLC, an LLC has more flexibility and fewer restrictions than an S corporation. An S corporation cannot have more than 75 stockholders, cannot issue more than one class of shares, and is subject to more formalities than an LLC (such as the requirement to hold an annual meeting of stockholders). However, member-employees of an LLC are required to pay social security and Medicare taxes on the profits of an LLC over and above the member’s salary. Stockholder-employees are not required to pay these taxes on profits over and above the stockholder’s salary. What legal documents are needed to form a LLC? In order to create an LLC, articles of organization first need to be filed with the Secretary of State or similar government agency. Next, the LLC members need to enter into an operating agreement which sets forth the rights of the members and the rules for running the company. An LLC may also need to apply for a tax identific
