As we explained above, an S Corp is a tax classification, while an LLC is a business entity. This means an LLC can attain S corporation status if it meets certain criteria. However, LLCs and S corporations require different management and shareholder structures and have unique reporting requirements. We'll dig into these differences below.

Owner employment

S corporation can employ their owners and pay them a salary. An LLC treated as a corporation can also pay owners a salary. If your LLC makes a profit after paying owners a reasonable salary, you might save money on taxes by electing S corporation taxation.

Key takeaways:

• S corp: Owner can be hands-off or take a salary as a company employee
• LLC: Owner can be hands-off or participate in organization management

Ownership structure

By default, an LLC operates like a sole proprietorship or partnership. That being said, most LLCs are run by the terms of their operating agreement. An operating agreement is a document filed with the Secretary of State to give them the basic facts about your business; it is also a place for you to lay out the rules for how your company will be run. An LLC can have unlimited owners (members) worldwide, and these owners can also be another corporate entity.

An S Corp must be a U.S. business owned by U.S. citizens and cannot have more than 100 owners. Beyond individuals, S corporations limit ownership to trusts and estates.

Key takeaways:

• S Corp: 100 or fewer owners; must be U.S. citizens or U.S.-based trusts
• LLC: Unlimited owners with no restrictions on classification or nationality