My company is a C corporation but I'm thinking of switching to an LLC or an S corp. Does have anyone have pros and cons of LLC vs. S corp? What is your business structure and why did you choose it?

Hi Joanna,

What is your reason for wanting to switch from a C corporation to an LLC or S corp? My accountant suggested that I set up an S corporation, but settled on an LLC since most of my business is contracted with multiple partners.

As the business dynamics change, the business structure could change too.

The main difference is how your profits are taxed. In a traditional C Corp your profits are taxed twice. In an S corp there are no corporate taxes. All profits are passed through to your personal income tax. I choose an S corp for the protection that a corporation give my personal assets. Additionally I can use other expenses to offset any profits. The only reason you should have a C corp is if you have shareholders. Other than that a C corp is costing you money.

Dear Joanna:

Entity choice is a complex matter as there are legal as well as tax ramifications.

I suggest you take time to meet with you accountant and or your attorney to explain what you want to achieve. In that setting they should be able to provide you guidance in the pro's and con's of the various entity choices.

Generally you have a better selection of fringe benefits as a C-corporation and as one of the responders mentioned you may face double taxation as a c-corporation. You might be able to select a business year that does not end in December which might be advantageous. Record keeping is greater than in a non corporate setting.


An s-corporation like a c-corporation has more record keeping needs than a non corporate entities. Those shareholders who own more than 2% of the stock lose their fringe benefits. You most likely will have to have a December year end. Loan structure becomes important in getting the most of your tax deductions. Some people choose an s-corporation to play "beat the fica" tax. The thinking goes like this. I will simply have all the profits of my s-corporation flow to me directly and thereby avoid any payroll (with associated fica, futa, & suta tax). The IRS is going after this "beat the fica" game big time. So you need to pay yourself and other employees a reasonable salary. You may not take money out of the s-corporation as an independent contractor. Some states, such as California have major tax hits on s-corporations (as well as LLC's) so if you are doing business in CA you might not want to be an LLC nor an s-corporation.

An LLC gets to choose how it will be taxed, as a partnership, c-corporation, s-corporation, trust, or sole-proprietorship. In some states, such as Arizona, the state corporation commission filings are easier if you are an LLC (choosing to be taxed as a corporation) as compared to a corporation. Do not know why that's just the way it is.

A partnership has better in passing losses and gains through to its partners. There is no W2 payroll for the partners as there is W2 pay to corporation employees. You most likely will have a December year end. Fringe benefits are most likely gone.

A sole proprietorship has lesser record keeping issues than other entities. There is no W2 payroll for the owner. Fringe benfits are limited when compared to corporation fringe benfits.

Another matter is that real estate should NEVER (I know never say never as there may be some exceptions) be in a corporation. Real estate is typically held individually or by a partnership. Some issues are double taxation and the pass though of gains and losses.

Bottom line you need to consult with you accounting and legal advisors to properly make your entity choice.

Good Luck
Walter F Dudley
Phoenix, AZ