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LLC vs C Corporation vs S Corporation

Entities Characteristics LLC Limited Liability Company C Corporation S Corporation
Ownership Rules Unlimited number of members allowed Unlimited number of shareholders; no limit on stock classes Up to 100 shareholders; only one class of stock allowed
Personal Liability of the Owners Generally no personal liability of the members Generally no personal liability of the shareholders Generally no personal liability of the shareholders
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 Corporation taxed on its earnings at a corporate level and shareholders are taxed on any distributed dividends 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 Needed for Formation Articles of Organization / Certificate of Formation; Operating Agreement Articles of Incorporation; Bylaws; Organizational Shareholder and Board Resolutions; Stock Certificates; Stock Ledger Articles of Incorporation; Bylaws; Organizational Shareholder and Board Resolutions; Stock Certificates; Stock Ledger; IRS (& sometimes a state) S Corporation election
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 Board of Directors has overall management responsibility; Officers have day-to-day responsibility Board of Directors has overall management responsibility; Officers have day-to-day responsibility
Capital Contributions The members typically contribute money or services to the LLC and receive an interest in profits and losses Shareholders typically purchase stock in the corporation, either common or preferred Shareholders typically purchase stock in the corporation, but only one class of stock is allowed


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This article was written by , an Illinois business attorney and frequent writer and speaker on limited liability companies. The site is for educational and informational purposes only and does not constitute legal advice. The information which is presented here is intended to make limited liability companies easier to understand, but weighing the tax, liability and operations issues requires a thorough understanding of the applicable law and cases. Anyone contemplating forming a limited liability company is urged to obtain proper legal advice.