Limited Liability Companies as S Corporations?
You might ask: Why do this? Maybe the answer is: just because you can. It is clearly possible for a state law limited liability company to elect to be taxed as a corporation and then make an S corporation election (if the entity otherwise qualifies to make such an election). The question is--why?
The explanation has to lie with applicable state law. Possible state law law explanations include:
- The applicable state limited liability company statute is more favorable than the applicable state corporate statute.
- Perhaps, for example, because the state law on limiting the liability of the managers of the LLC is more favorable than the state law limiting the liability of directors and officers of the corporation.
- Or perhaps because the state law with respect to the governance of the LLC is more favorable than the state law with respect to the governance of the corporation.
In the author's opinion, whatever is to be gained in these regards is overshadowed by the complexity of the set up, and the confusion that it is likely to generate in future due diligence questions. In most if not all cases the author believes that this choice of entity is likely to be more trouble than it is worth.
