What is the difference between an LLC and and S-Corp?

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What is the difference between an LLC and and S-Corp?

I am opening a cafe with a business partner. We want to know the best way to

register our business and whose name to put on documents.

Asked on March 27, 2018 under Business Law, New York

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 4 years ago | Contributor

Legally, LLCs and S-corps are different things: a limited liability company vs. a corporation. Practically, they are essentially the same--two different ways to get the same effect (the same way you can get TV via cable or via a satellite dish). Both protect you personally from most (not all; no protection is perfect) business-related liability and debts (apart from any you guaranty, such as if you personally guaranty a loan or lease); both provide the same "pass through" (no double taxation) tax treatment.
There is a slight advantage for most small businesses to an LLC: they involve somewhat less paperwork and formalities. They are a litle more "user friendly" that way. 
If you are both owners, you should both be listed as "members" (that's what you call an LLC owner) when you register the LLC.
Think about issues like what happens if the two of you deadlock on a decision (since 50-50 owners could stalemate each other if there is no provision made to break the tie), or what if one of you wants out--does the other have to buy him out? if so, at what price?--or can one of you sell part or all of his interst to a third party without the other person's approval. These are important questions that should be answered before you form the business and the answers to which can be made part of the "operating agreement" governing (or controlling) the LLC. A business attorney can draw up the operating agreement for you and help you register (set up) the LLC.


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