CPA/attorney and LAB member, Jeff Vandrew, on the difference between entity choice and tax status:

A single member LLC has a choice of the following tax statutes: disregarded entity (like a sole proprietorship), S-corporation, or C-corporation.

A multi-member LLC has a choice of the following tax statutes: partnership, S-corporation, or C-corporation.

A corporation has a choice of the following tax statutes: S-corporation or C-corporation.

Read (and respond to) Jeff’s comment in the LAB.

One Comment

  1. Jeff Vail says:

    One difference is citizenship of the LLC. A corporation is a citizen of the state where it is incorporated and where it has its principle place of business. See Carden v. Arkoma Assocs., 494 U.S. 185, 196 (1990). An LLC, on the other hand, is a citizen in every state in which its members are citizens. See, e.g., Smith v. Locher, 10-cv-999-MSK, 2010 WL 2342475 (D. Colo. June 8, 2010). For 95% of LLCs this may be irrelevant, but for some it may have very significant impacts on where they can bring and defend lawsuits, removal to federal court, the availability of diversity jurisdiction in federal court, the importance of proactive e-discovery measures, etc. It might not tip the scales, but it’s something every transactional lawyer should at least consider before deciding between Corporation and LLC.

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