Lextree Simply the best software for managing legal entities and documents.
The Berkman Letter Practical analysis and commentary for business, law, and more.

When should I choose an LLC over an S-Corp?

3
stars
3
answers
1222
views
I've always considered LLC's to be for small personal businesses such as software consultancies, design agencies and so on. But there are large companies I'd have thought would be full corporations but are not. For example, Kaiser Permanente is an LLC with 150,000 employees. Chrysler, the car company, is also an LLC.What benefit do they get from being LLCs?
Answers
2
stars

LLC is a type of legal entity (like a Corporation) while S-Corp is a tax classification (like C-Corp, partnership, etc). You can elect to have an LLC taxed as an S-Corp, C-Corp, partnership, and so on. Legal entity choice such as LLC vs Corporation impacts the administrative requirements (filings, meetings, etc) and ownership/management structure (Corporations have shareholders, directors, officers but LLCs have members and can optionally appoint officers). Tax classification impacts whether or not tax obligations are passed through to owners as in partnership or sole proprietor taxation vs tax obligations belonging to the legal entity itself with additional tax obligations for owners as in C-Corp and S-Corp taxation. See the link for a more detailed explanation of considerations when organizing a legal entity and choosing a tax classification.

There are a variety of reasons that some large businesses are organized as LLCs. One of the most common reasons is simply to set up a subsidiary entity that is simple to administer and disregarded for tax purposes (because the tax obligations are passed through to the owner entity) - this is the case for Chrysler, now FCA US LLC, which is the US subsidiary of Fiat Chrysler Automobiles, NV .

2
stars
Also consider that an S Corp is a federal tax designation. As such, IRS regulations determine the restriction for companies formed to take advantage of S corp taxation (like a partnership). LLCs are a more modern type of legal entity based on state law. As a general rule, the IRS allows LLCs to elect partnership (pass-through) tax status. So LLCs are sometimes referred to as "disregarded entities." LLCs have a great deal more flexibility than S Corp from a governance and management perspective. LLCs have certainly been one of the fast growing types of legal entities.
0
stars
This is really only a question for a company that has been in business for over a year and is making money. Once you are making money hire a good accountant that can set that up for you. Until you start to make money that question doesn't matter.