When starting a business, choosing the right legal structure is crucial for success. LLCs and S-corps are two of the most popular business structures in the United States. Both offer limited liability protection to the business owners and have similar tax benefits. However, there are some key differences between LLCs and S-corps that business owners should be aware of before choosing which structure to use for their West Virginia-based business.

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What is an LLC?

A Limited Liability Company, or LLC, is a business structure that combines the benefits of a corporation and a partnership. It offers limited liability protection to its members, which means that their personal assets are protected in case of lawsuit or bankruptcy.

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An LLC is often preferred over other business structures because there are fewer formalities that need to be followed in order to create and maintain it. In other words, compared to an S-corp, the LLC is less complicated and simpler to run. Furthermore, a person can form an LLC alone or in a group and can still pay taxes the same way a sole proprietor or partnership does.

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LLCs are taxed as pass-through entities, which means the company’s income is “passed through” to its members/profits, where it is taxed at the individual tax rates. Additionally, LLCs have the option to be taxed as a corporation, using the federal tax code provisions for C-corps.

What is an S-corp?

On the other hand, S-corp is a corporation that meets the requirements set forth by the Internal Revenue Service (IRS) to be taxed under Subchapter S. An S-corp acts as a regular corporation in that it issues stocks and can raise capital by selling shares on a stock exchange. However, unlike a C-corp, an S-corp’s profits and losses “pass-through” to its shareholders, doubling the company’s taxation benefits.

In order to be eligible for an S-corp, the corporation has to meet the following requirements:

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