Most prospective business owners do not understand the distinction between entity formation and entity taxation. It is common for clients to say that their accountant has advised them to form an S-Corp, and then balk at the idea of an LLC. The fact is, you can have both.
A corporation or an LLC are formed under state law. An owner may select a particular business entity because of how it affects ownership, liability, or asset protection. After selecting an entity type, the business then makes a tax election under federal law. That election will determine how the business is taxed. It is common for an LLC formed under state law to elect taxation as an S Corp.
LLCs have become the most flexible and preferable entity for most operating businesses. They combine tax planning flexibility with administrative simplicity, legitimate asset protection, and a built-in plan for succession of interest after the business owner retires or dies.
LLCs provide a powerful tool for estate planning, too. Families who may not operate going businesses can still benefit from the protection and flexibility that LLCs provide, by creating a proven and reliable structure to manage and distribute family property to children or future generations.