The Differences between: An LLC vs C Corporation vs S Corporation
LLC Limited Liability Company:
Ownership Rules: Unlimited number of members allowed
Personal Liability of the Owners: Generally, no personal liability of the Members (owners in an LLC)
Tax Treatment: The entity is not taxed (unless it elects to be taxed as a corporation); profits and losses are passed through to the Members
Key Documents Need for Formation: Articles of Organization / Certificate of Formation; and it is highly recommended to also have an Operating Agreement
Management of the Business: The Operating Agreement sets forth how the business is to be managed; a Member (owner) or Manager can be designated to manage the business
Capital Contributions: The Members typically contribute money or services to the LLC and receive an interest in profits and losses
C Corp:
Ownership Rules: Unlimited number of shareholders; no limit on stock classes
Personal Liability of the Owners: Generally, no personal liability of the shareholders (owners in a C Corp)
Tax Treatment: Corporation taxed on its earnings at a corporate level and shareholders are taxed on any distributed dividends
Key Documents Need for Formation: Articles of Incorporation; Bylaws; Organizational Shareholder and Board Resolutions; Stock Certificates; Stock Ledger
Management of the Business: Board of Directors has overall management responsibility; Officers have day-to-day responsibility
Capital Contributions: Shareholders typically purchase stock in the corporation, either common or preferred
S Corp:
Ownership Rules: Up to 100 shareholders; only one class of stock allowed
Personal Liability of the Owners: Generally, no personal liability of the shareholders
Tax Treatment: With the filing of IRS Form 2553, a corporation becomes a S Corporation, where the profits and losses are passed through to the shareholders
Key Documents Need for Formation: Articles of Incorporation; Bylaws; Organizational Shareholder and Board Resolutions; Stock Certificates; Stock Ledger; IRS (& sometimes a state) S Corporation election
Management of the Business: Board of Directors has overall management responsibility; Officers have day-to-day responsibility
Capital Contributions: Shareholders typically purchase stock in the corporation, but only one class of stock is allowed