LLCs sound pretty good, right?

Well (and you knew this was coming), there are some down-sides too. For starters, S-Corporations get better deductions in regards to benefits (health insurance, etc.) The status of the pass through income is a little different as well for the personal service principals (the principals that are employees.) It is considered “passive income” and not “earned income (like it is with an LLC.) Thus, Social Security and Medicare taxes (at this writing) are not levied. In addition, LLC’s may have a limited shelf-life. Some states have a cap on how long they can stay in business (30 years, etc.) In closing, you could say that S-Corporations allow for more shareholder uniformity and tax savings, while an LLC allows more free negotiations and possibilities for ownership and accountability. You can almost think of an LLC as a marriage between a classic small business (partnership / sole proprietorship) and a corporation.  more