Florida LLC vs Florida S Corporation – Asset Protection

What Is the Difference Between an LLC and S Corp?

The difference between a Florida LLC and a Florida S corporation is that an LLC offers flexible management, fewer compliance requirements, and pass-through taxation without restrictions on the number or type of owners. In contrast, a Florida S Corporation provides pass-through taxation but with stricter ownership rules, including a limit of 100 shareholders who must be U.S. citizens or residents, and requires a more formal structure like a board of directors. Both structures provide limited liability protection, but the choice between them depends on your specific business needs, tax situations, and funding strategies.

Here’s a breakdown of the key differences:

Business Structure and Formation

An LLC is a flexible business structure that combines a partnership’s pass-through taxation with a corporation’s limited liability protection. It’s relatively easy to form and manage. Owners of an LLC are called members, and an LLC can have an unlimited number of members.

An S Corp is a special type of corporation designed to avoid the double taxation typically experienced in traditional corporations. To become an S Corp, a business must first be a corporation, then file a special election with the IRS.

Taxation

LLCs enjoy pass-through taxation, meaning the business itself is not taxed. Instead, profits and losses are passed through to members and reported on their personal tax returns. Members can also choose how they want the LLC to be taxed (like a corporation, partnership, or as a disregarded entity if it’s a single-member LLC). An LLC can still be treated as an S Corp for tax purposes, even though it’s still an LLC.

S Corps also have pass-through taxation. However, shareholders can be employees and draw salaries, and the remaining income can be distributed as dividends, which are often taxed at a lower rate. There are strict rules about who can be a shareholder (e.g., no more than 100 shareholders, all of whom must be U.S. citizens or residents).

Ownership and Investment

LLCs offer more flexibility in ownership. There are no restrictions on the number or type of members. Raising capital can be more challenging, as investors may prefer more traditional corporate structures.

S Corps have more restrictions on ownership. For instance, they can’t have more than 100 shareholders, and all shareholders must be U.S. citizens or residents.

Management and Compliance

LLCs have a simpler management structure and fewer compliance requirements. They’re not required to have a board of directors or hold annual meetings. The members can manage the LLC themselves (member-managed) or appoint managers (manager-managed).

S Corps have more formal requirements, similar to a standard corporation. This includes a board of directors, annual meetings, and maintaining corporate minutes. These requirements can make S Corps more complex to operate than LLCs.

Personal Liability Protection

Both LLCs and S Corps offer limited liability protection, meaning that in most cases, the personal assets of the owners/shareholders are protected from business debts and lawsuits.

Frequently Asked Questions

About the Author

I’m an attorney who specializes in asset protection planning. I graduated with honors from Emory University Law School and have been practicing law for almost 15 years.

I have helped thousands of clients protect their assets from creditors. Before private practice, I represented the federal government while working for the IRS Office of Chief Counsel.