Florida LLC vs S Corp: Everything You Need to Know
Florida LLC vs. S-Corp. shows the differences between small businesses that operate as LLCs or S-corporations, including personal asset protection and tax benefits. There are pros and cons of each structure.3 min read
2. Similarities Between LLCs and S-Corporations
3. Ownership Differences
4. Differences in Formalities
5. Management Differences
6. Other Differences
Florida LLC vs. S-Corp. shows the differences between small businesses that operate as LLCs or S-corporations, including personal asset protection and tax benefits. There are pros and cons of each structure.
LLC vs. S-Corporation
When you're thinking of creating a new business or changing your business structure, you'll probably compare LLCs to S-corporations. Subchapter “S” Corporations (S-corps) and Limited Liability Companies (LLCs) work well for small business owners. They share similarities, but they also have differences.
Whether you operate an LLC or S-corp., you assume personal liability for all business debts and obligations. In short, if the business fails, you stand to lose a lot.
One of the biggest advantages of operating an LLC or S-corp. is the protection you have for your personal assets from business creditors. If you prefer a flexible management style, go with an LLC. Choose S-corp. as a business structure if you're more concerned with employment tax benefits.
Similarities Between LLCs and S-Corporations
The following are similarities between the two structures:
- Separate entities: Each is considered a separate legal entity.
- Limited liability protection: Owners aren't usually held personally responsible for liabilities and debts related to the business.
- Pass-through tax entities: Only if more than one person owns an LLC does it have to submit a business tax return, although S-corps always do.
- Pass-through taxation: There's no double taxation because business profits or losses pass through the business owners' personal tax returns. There aren't business-level income taxes, only individual ones.
- Deductions: Both types of businesses can deduct pre-tax expenses, including uniforms, travel, computers, promotion, advertising, phone bills, car expenses, gifts, and health care premiums.
- Both business types have to adhere to certain formalities, including paying required fees and filing annual reports.
Differences in ownership between the business structures include the following:
- The IRS places some restrictions on S-corps compared to LLCs.
- S-corps aren't allowed to have more than 100 owners, or shareholders, while LLCs can have as many members as they like.
- Non-U.S. residents or Non-U.S. citizens are prohibited from being shareholders for S-corps, while this is allowed for LLCs.
- LLCs can be owned by S-corps, C-corps, other LLCs, trusts, or partnerships, but S-corporations can't be owned by any of these.
- There are no restrictions on the subsidiaries an LLC can have.
Differences in Formalities
While some formalities are recommended for LLCs, these business structures aren't required to follow them in the same way that S-corporations must. Internal formalities are more extensive for S-corps.
For S-corps, required formalities include the following:
- Adopting bylaws
- Having regular meetings for directors and shareholders
- Issuing stock
- Keeping minutes with corporate records
There are also some burdensome formalities that S-corps are subject to, which include strict guidelines for the initial formation of the company and regular record filing with the Florida Secretary of State. LLCs don't have the types of administrative requirements that S-corps do, so there's no yearly shareholder meetings, board of directors, or corporate officers, for example.
Formalities that are recommended for LLCs include the following:
- Having an operating agreement
- Holding yearly member meetings, as well as documenting them
- Issuing membership shares
- Holding regular manager meetings (for manager-managed LLCs)
- Documenting major business decisions
LLCs may be managed by managers or members (or owners). An LLC functions more like a partnership when it's managed by members. When managers operate an LLC, it runs more like a corporation because owners aren't typically involved in day-to-day business decisions.
S-corporations have officers and directors. A board of directors doesn't see to daily operations; instead, it handles big company decisions and oversees the company's affairs. In an S-corp., directors choose officers who are responsible for handling daily business.
An LLC may have a limit to its lifespan as some states require a dissolution date to be listed in the formation documents. S-corps, however, enjoy a perpetual existence. If a member dies or leaves the LLC, it could be the end of the LLC.
There's a lot to consider when forming a new business, so look into the pros and cons of different business structures. You want to have more pros than cons in order to run a successful company.
If you need help with deciding between LLCs and S-corporations, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.