LLC or S-Corp?

LLC or S-Corporation?  This question is a common one.  However, it is not even the right question!  LLCs and S-corporations are apples to oranges.  You can have both.

An LLC is a state law entity, a limited liability company.  It is governed by the Texas Business Organizations Code, a state law.  

An S-corporation is a federal income tax election made by filing Form 2553.  The "S" stands for Subchapter S of the Internal Revenue Code, the federal tax law.  You do not create an s-corporation by filing a document with the Texas Secretary of State.  Technically, you do not even "create" an S-corporation.  You make an S-corporation election.

The proper question is, "Should I create an LLC and make the S-corporation election?"  A state law corporation (filed by filing a formation document with the Texas Secretary of State), an LLC, and even a limited partnership can make an s-corporation election.  Yes, a limited partnership can be an S-corporation, because this status is an election.  An LLC and LP are eligible entities that can make an s-corporation election, if the requirements for an s-election are met.  This law is known as the "check-the-box regulations," and these regulations were actually implemented in the late 1990's!  Amazingly, the regulations still trip up other lawyers and even accountants today.

An LLC is the most common operating entity today.  An S-corporation is preferable for many small businesses, particularly those with a sole owner and employees.  An LLC with a sole member that makes an s-corporation election will then treat that sole member as an employee, if such employee is providing services on behalf of the LLC.  

Most of the time forming an LLC is the preferable entity.  Your next question is determining whether to make that s-corporation election for the LLC.