The Most Common Entity Decision
The LLC vs. S-Corp question is the most frequent entity selection decision mid-market business owners face. Both provide liability protection and pass-through taxation, but the tax treatment of owner compensation differs significantly.
| Factor | LLC | S-Corporation |
|---|---|---|
| Self-Employment Tax | On all profits | Only on salary portion |
| Governance | Minimal (operating agreement) | Formal (bylaws, meetings, minutes) |
| Ownership Flexibility | Unlimited members, any type | Max 100 shareholders, US persons only |
| Profit Distribution | Flexible allocation | Pro-rata to ownership |
| State Filing | Articles of Organization | Articles of Incorporation + S election |
| Best For | Early-stage, flexible ownership | Profitable businesses seeking tax optimization |
The Verdict
LLCs can elect S-Corp taxation via IRS Form 2553, giving you LLC flexibility with S-Corp tax benefits. This is often the optimal structure. See Entity Selection Guide.
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Lee Clark
Licensed ID & CA. Arbitrator, Judge Pro Tem, mediator since 2008.
Conor Meyers
CEO/GC of ACE Building Envelope Design. CLO of ZEA Biosciences.