An S-Corp is a tax designation assigned by the Internal Revenue Service (IRS). To be designated an S-Corp, you must apply with the IRS and be approved. An S-Corp designation does not change the entity structure of your LLC. Instead, it alters the way in which your business is taxed on a federal level.
Is Your Wyoming LLC Eligible to Be an S-Corp?
All of these requirements must be maintained throughout the life of your LLC.
An LLC is a mostly informal business structure. Members may manage the business, or management may be turned over to a manager or a group of managers. There is no Board of Directors or administrative officers, and there are no requirements for management to meet annually and distribute information to members.
An S-Corp, however, must adopt the management structure of a Corporation. There must be a Board of Directors, as well as Corporate Officers: President, Vice President, Secretary and Treasurer. An S-Corp must hold annual shareholder meetings, publish shareholder reports, maintain meeting minutes, etc.
LLC members are not required to be paid a salary. Instead, they are entitled to a percentage of the profits of the company, dependent upon their ownership percentage.
An S-Corp, however, must pay each shareholder a reasonable salary (meaning a salary equitable to the standard wage for that position in similar corporations). Profits must be assigned as distributions.
An LLC is allowed to distribute profits how it chooses. Distributions may be in proportion to a member's initial contribution to the company, but this is not a requirement.
With an S-Corp, profit distributions are required to be proportional to the contributions of each shareholder. In other words, if Bill and Joe both contribute $10,000 to the company in return for ownership shares, they cannot be given different profit distributions.
The length of an LLC's existence is usually dependent upon all of the members remaining part of the company. If a member parts from the company, an LLC is usually dissolved (unless this is specficially addressed in the company's operating agreement).
An S-Corp, on the other hand, has a perpetual existence, just like a corporation. Shareholders may leave the company at any time, but the S-Corp continues to exist independent of its owners.