What is S-Corporation and How Does it Differ from LLC?

S-Corporation (S-Corp) is a special tax status company type in the United States. This structure, recognized by the IRS, allows companies to avoid corporate taxes by passing income directly to shareholders. Compared to LLC, S-Corp has a more complex structure but can offer tax advantages in certain situations. To elect S-Corp status, the company must have fewer than 100 shareholders, all shareholders must be US citizens or permanent residents, and there must be only one class of stock. While LLCs have a more flexible management structure, S-Corps must comply with stricter corporate formalities. S-Corps can provide significant tax advantages in salary and dividend distribution because only the salary portion is subject to payroll taxes.