LLC vs. S-Corp in California
A side-by-side comparison of the two most common small-business entities, formation, taxation, governance, and the situations where each one fits.
| Dimension | LLC | S-Corp |
|---|---|---|
| Liability Protection | Limited liability for members | Limited liability for shareholders |
| Taxation | Pass-through by default; can elect S-Corp tax treatment | Pass-through with payroll/distribution split |
| Self-Employment Tax | All net income subject to SE tax (default) | Only salary subject to FICA; distributions are not |
| Ownership Limits | Unlimited members; foreign & entity members allowed | Max 100 shareholders; US individuals only |
| Stock Classes | Flexible, multiple membership classes | One class of stock (voting differences allowed) |
| Governance | Operating Agreement; flexible structure | Bylaws, board of directors, formal meetings |
| Annual CA Fee | $800 minimum + gross-receipts fee tiers | $800 minimum + 1.5% net income |
| Formation Complexity | Simple | Moderate |
| Best For | Solo owners, real estate, partnerships, businesses with simple structures | Profitable service businesses where owner takes a salary |
When an LLC fits
LLCs are the default starting point for most small California businesses. They are simple to form, flexible to govern, and accommodate any number and type of owners. If you are starting a single-owner consulting business, a real estate holding company, or a partnership, the LLC is usually the right tool.
When an S-Corp fits
S-Corp tax treatment becomes attractive once net income exceeds roughly $80,000–$100,000 per year, because it lets the owner split income between salary (subject to FICA) and distributions (not). It comes with formal governance, bylaws, a board, meeting minutes, and stricter ownership rules.
The hybrid: LLC taxed as S-Corp
A common structure is an LLC that elects S-Corp tax treatment. This combines the operational simplicity of an LLC with the FICA savings of an S-Corp. We file the Form 2553 election as part of the formation engagement when it makes sense for your situation.
About llc vs. s-corp.
The questions we field most often, answered the same way we'd answer them on a first call, without filler and without disclaimers that are not required.
Q.Can I convert an LLC to an S-Corp later?
Q.How much does formation cost in California?
Q.Do I need an attorney for formation?
Not sure which entity is right?
A 20-minute consultation usually settles it. Free, no obligation.