Before you form your new company, educate yourself about the differences between the business entities you could choose. Your choice will have a lasting effect on your business’s finances, legal status, and tax requirements.
For most small, closely held, and family businesses, your choice will come down to an S-Corporation or an LLC. An S-Corp is just a standard corporation that files Form 2553 with the IRS. This election distinguishes S-Corporations from C-Corporations and has an effect on how the corporation is taxed.
Corporate stock is a measurement of the ownership of a corporation. If a corporation has 1,000 shares of stock and you own 400 shares, you can say that you own 40% of the corporation. Whether the stock is traded privately or publicly on the stock exchange is irrelevant; shares are simply a way of determining an individual’s share of ownership in a corporation.
An LLC is different, however. LLC owners are not referred to as shareholders, but as members. A member’s share of ownership in the LLC is determined by the LLC’s operating agreement or by some other document that outlines each member’s ownership interest. The LLC ownership structure is different from a corporation in this way. Though some LLCs may issue ownership certificates to its members so that each person knows how much of the LLC they own, these are not true stock certificates. Only corporate shareholders own stock.
Because of the ownership structure of LLCs, there is no such thing as a publicly traded LLC. A limited liability company will not appear on the NASDAQ and may not issue stock like a corporation does.