Question

Why was the S Corporation such a highly used entity type before the creation of the LLC? What are the major differences between the LLC and S Corporation?

Answer 1

Before the creation of the LLC, the S corporation was such a highly used entity type because on one it help to mitigate the needs for capital required for business expansion and on the other hand this form of corporation was able to avoid the problem of double taxation which is generally faced by the standard C corporation. the taxation system for S corporation is similar to partnership. it has the benefits of both C corporation like limited liability and partnership like "pass through" taxation.

the major differences between LLC and S corporation are listed below:

owners of LLC are referred members where as owners of S corporation are referred as shareholders

there are unlimited number of owners in formation of LLC whereas there are maximum 100 shareholders in case of S corporation.

In LLC owners get membership interest, whereas in S corporation owners get shares

any individual or entity can be a member of LLC whereas only US citizen and individual can only be shareholder of S corporation.

Profit and loss are distributed according to members agreement in LLC whereas in S corporation profit and loss are distributed according to ownership