What is the difference between an LLC and an S Corp?

Question

Accepted Answer

The comparison is partly a category error: an S corporation is not a type of business entity at all — it is a federal tax election under subchapter S of the Internal Revenue Code (26 U.S.C. § 1361), which Arizona law recognizes by reference rather than creates . An LLC, by contrast, is an actual legal entity formed under Arizona law.

LLC (an Arizona entity type):
- A limited liability company is an entity distinct from its member or members, formed under Arizona's LLC statutes .
- It may have any lawful purpose, for profit or not, except that it may not engage in banking and may not be an insurer except in limited authorized cases .
- It has perpetual duration and the capacity to sue and be sued in its own name .
- It is formed by filing articles of organization under A.R.S. § 29-3201, and its owners are called "members" .

S corporation (a tax status, not an entity):
- Arizona statutes define "S corporation" only by reference to section 1361 of the Internal Revenue Code — the underlying entity is a corporation (governed by Arizona's corporation statutes in Title 10), and "S" status is an election about how it is taxed .
- A corporation that makes the federal S election is generally not subject to Arizona corporate income tax to the extent it is not subject to federal income tax; instead, income and loss pass through to shareholders, who are reported on an annual return filed with the department .
- The election remains in effect for succeeding years unless terminated under federal law .

What the sources do not cover: Whether an LLC itself can elect S corporation tax treatment, the eligibility requirements for the S election, and the formation requirements for an Arizona corporation under Title 10 are not addressed in these sources. Because the S election is fundamentally a matter of federal tax law, consult a licensed attorney or tax professional for advice on choosing between these structures.