With an LLC, you can choose to have income passed through to the company's members. The company pays no income tax, but the members are subject to self-employment taxes. An LLC can have any number of members -- from one upward.
And unlike an S corporation, which has to distribute dividends in proportion to number of shares held, LLCs can divvy out profits however they choose. "You have a lot more flexibility using an LLC than other structures," says Saul Brenner, a partner at New York City accounting firm Berdon LLP.
"You have the advantage of limited liability that you get through corporations, but a lot more flexibility as to allocation of income. You can get different people involved as equity owners with different classes of membership. It's far superior."
But be careful about pushing out all your income as dividends to avoid having to pay Social Security taxes. "If the IRS sees you didn't take out any of your income to pay salaries and didn't pay Social Security taxes, it can make you reclassify some of your income as salaries.
And keep in mind that an S corporation is limited to 100 shareholders and one class of stock. If you have a business for which you need a lot of investors -- a real estate development company for example -- that could be a serious disadvantage.
Bankrate wants to hear from you and encourages thoughtful and constructive comments. We ask that you stay focused on the story topic, respect other people's opinions, and avoid profanity, offensive statements, illegal contents and advertisement posts. Comments are not reviewed before they are posted. Bankrate reserves the right (but is not obligated) to edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.