What’s the difference between a Corporation, an “S Corp” and an LLC?

A Corporation and an S-Corporation are the same “entity” type that includes Shareholders, Directors, and Officers. The Federal government taxes each entity type differently, which is what makes each type unique.

• A Corporation is taxed once on its net profits – currently 21% – and again when those profits are distributed to shareholder(s) as “dividends” – this is called “double taxation”.

• An S-Corporation (“S” means “Small”) has filed a form with the IRS that allows it to not be taxed on the profits; instead, the profits (not including salaries) are added to the personal tax returns of the shareholder(s) and are taxed at the shareholder’s personal tax rate (instead of being double-taxed). Some states require their own small business designation in addition to IRS requirements. The main restriction to organizing as an S-Corporation is that all shareholder(s) must be US citizens and there is a maximum of 100 shareholders.

An LLC is different from the Corporation entity type because it does not have Shareholders, Directors, and Officers. Instead, an LLC has what are called Members, which are the company’s owners. An LLC can choose “Managers” to manage and also assign titles like “President”, “Vice President”, etc. Members can be either a real person or a business entity and there are no US Citizenship requirements.

If you need help choosing the right entity type for your company, read our guide Which Business Entity to Choose.