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This means that the LLC does not pay taxes on its profits, but instead, profits and losses are 'passed through' to the owners, who must then pay tax on their share of LLC income. Like a sole proprietorship or a partnership, an LLC has operating flexibility and is, by default, a 'pass through' entity for tax purposes. Like a corporation, the owners of an LLC are generally not personally liable for company debts.

On the other hand, LLCs generally are not required to hold formal meetings, but an LLC owner may be subject to higher self-employment taxes than a comparable S corporation owner.That is because an S corporation owner is required to pay self-employment tax only on salary, but not on dividends from the corporation. An S corporation is also subject to more formalities, such as holding annual meetings and keeping corporate minutes. An S corporation must not have more than 100 shareholders, all of whom must be U.S.Citizens or legal residents.

We cannot provide any kind of advice, explanation, opinion, or recommendation about possible legal rights, remedies, defenses, options, selection of forms or strategies. LegalZoom provides access to independent attorneys and self-help services at your specific direction.We are not a law firm or a substitute for an attorney or law firm. Disclaimer: Communications between you and LegalZoom are protected by our but not by the attorney-client privilege or as work product. The shareholders still have to pay taxes on money that they receive from the corporation, but an S corporation does not pay taxes on its net income.While the S corporation is popular among small business owners, C corporations have greater tax planning flexibility and can shield shareholders from direct tax liability. S corporations have only one level of taxation.