S Corp Vs. LLC: Differences And Similarities (2026)

What an LLC Is

An LLC is a business entity that exists separately from its owners. It is tailored for small businesses with minimal investor turnover.

What an S Corp Is

A corporation also exists separately from its owners, called shareholders. Corporations can choose between two types of tax treatment, subchapter C or subchapter S. C corps are what come to mind when you think of the biggest and most powerful corporations. S corps are designed for small, closely held businesses.

Tax Differences Between S Corps and LLCs

S corps have the same structure and formation as C corps. The only difference is the IRS tax election. An S corp elects pass-through taxation, while a C corp elects corporate taxation.

LLCs can elect either pass-through or corporate taxation. In other words, LLCs can elect to be treated like S or C corps.

Thus, one difference between LLCs and S corps is that S corps are, by definition, pass-through tax entities. LLCs, by contrast, can choose pass-through or corporate taxation. This flexibility is one of the benefits of an LLC.

Another difference between an LLC vs. corporation is self-employment taxes. S corp shareholders only pay payroll or self-employment taxes on the salary and dividends paid. Each LLC member pays self-employment taxes on the entire revenue share allocated to them, whether it is actually distributed or not.

Ownership and Shareholder Rules

Ownership changes are easier with S corps than LLCs. A shareholder joins a corporation by acquiring outstanding shares.

LLCs generally cannot have outstanding shares. The LLC must create a new membership share or allow you to acquire an existing share to join the LLC.

The rules for corporate shareholders and LLC members are written in bylaws and operating agreements, respectively. However, the default rules for corporations and LLCs may differ, depending on your state’s business laws.

Management and Formalities Compared

Corporations are managed by the board of directors and run by officers. LLCs can be member- or manager-managed.

Corporations usually have more detailed and costly formalities. For example, many states require annual meetings, with meeting minutes preserved by the business. States usually do not require LLCs to hold meetings. However, state law may require LLCs to hold votes to decide certain issues, such as dissolution.

Can an LLC Elect S Corp Status?

An LLC cannot be an S corp. However, S corp members can elect pass-through LLC taxes.

When to Choose an LLC or an S Corp

An S corp’s flexibility in adding shareholders is its main advantage over LLCs. The tax treatment is very similar, and both entities limit owners’ liability. Consider speaking to a lawyer about your business’s needs, including whether you plan to add shareholders.