Answer by Wray Rives:
Actually an LLC and an S-corporation are NOT comparable types of entities. In fact the majority of S-Corps formed today are in fact LLC’s. An LLC is a legal type of entity created under the laws of your particular state while an S-corp is a type of tax entity for US Federal income taxes.
What you are really asking is the pros and cons of a partnership vs S Corp.
-Multiple owners and the owners may be individuals, corporations, LLC’s or other partnerships. There is no limit to the number of partners. Generally there should be a partnership agreement where the partners agree how business profits and losses are to be allocated among themselves. For federal tax purposes all income of the partnership “flows through” to and is reported by the individual partners on their tax returns. While there is no federal income tax paid by the partnership, the partnership does file a separate tax return (Form 1065) to report its profits and losses and to report the allocation of those profits or losses to the individual partners.
Income from the partnership is taxable to the individual owners when it earned and not when it is distributed by the partnership. However there is generally no tax consequence to partners contributing more money to a partnership or for the partnership to distribute funds to the partners.
Joint ventures, limited partnerships and limited liability partnerships are all still partnerships. State taxation of partnerships can vary and is another reason you should consult with a tax professional to understand how a partnership will work in your unique situation.
–S-Corps are taxed similar to partnerships, in that all the profits and losses “flow through” to the individual owners and are not taxed at the S-Corp level. Like a partnership an S-Corp files it’s own tax return each year (Form 1120S) to report its taxable earnings and to report how those earnings are allocated among the owners. There are several unique tax situations for S-Corps, including the requirement that profitable S-Corp owners mustfrom the business. Anyone considering an S-Corp should be sure they understand the tax obligations before they make that choice as that is an additional task that you would not have with a partnership. S-Corps have other limitations, such as only US citizens or resident individuals can be owners. Generally other entities cannot be an owner of an S Corp. Profits have to be distributed according to ownership percentage because you can have only one class of stock in an S Corp and you cannot have more than 100 shareholders.