Are there specific circumstances which would favor one of these forms (S corporation or LLC) over the other? If so, what would these circumstances be?
Every case must be evaluated and the entity choice made on its specific facts and circumstances (including applicable state law).
When an LLC Might be Better
In general, however, an LLC might be the more appropriate choice where the owners desire different categories of ownership that cannot be achieved consistent with the single class of stock rule applicable to S corporations.
When an S Corporation Might be Better
An S corporation, on the other hand, might be more appropriate in situations where a substantial part of the owners’ return can realistically be treated as investment return rather than compensation for the owners’ personal efforts.
Remember that the decision will always depend on the specific facts and circumstances.
Robert Warwick has practiced tax and corporate law for more than 35 years, both in private practice and as in-house counsel for two major corporations. He is presently counsel to ThompsonMcMullan, a Richmond, Virginia law firm. He holds JD and MBA degrees from Cornell University and a Bachelor of Electrical Engineering from Rensselaer Polytechnic Institute. Mr. Warwick is actively practices law in Virginia and does not claim any knowledge as to the particular laws of any other jurisdiction.
Disclaimer: The foregoing does not constitute legal advice and does not create an attorney-client relationship.
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