By Jean Fallago, JD, LLM
President, Almonte Fallago Group
Firstly, this overview is related solely to utilizing these entities for a professional practice and not appropriate for information in the event that these types of entities are used to own real estate or for nonprofessional businesses.
From a legal perspective, the corporation will require annual minutes and adherence to many formalities relative to documentation right down to employment agreement between you as the owner of the corporation. This is all relevant both under corporate law and tax law.
Comparably, a limited liability company ("LLC") needs no minutes nor any formal agreements in place. In fact, the very reason that LLC's came into existence was due to the cry for a simpler form of organization.
Both an LLC and Sub S Corporation pass through the profits of the owner. In a Sub S, a separate return is filed. In an LLC, you file a Schedule C on your personal tax return. Even though both provide for a pass-thru, there is a difference: in a Sub S setting, you can treat yourself as an employee of the LLC and thus all income passes through without withholdings, which therefore requires the filing and payments of estimated taxes. Of most importance, in the sale of a partial or total interest in the entity, there are greater benefits and flexibility using a LLC.