Liability protection of the two entities is identical. Don’t be distracted by the word liability in the name. I suggest getting liability advice from your attorney and tax advice from your CPA. (not vice versa!)
LLC active income to members is taxable as ordinary income subject to FICA/Self employment tax (unless you elect s-corp treatment for the LLC which can be done). While the income tax on income you receive from the two types of entities is the same, the FICA/Self-employment tax is NOT the same. S-corp dividends are not subject to FICA. This is a real tax advantage. For example, if your business earned 100K and you take it all as LLC distributions you will owe about 15K in FICA/Self-employment tax. If your entity were an S-corp and you took a 40K salary (as manager) and received 60K in dividends from your ownership of the entity you would owe ~6K in FICA on the salary but none on the dividends, a savings of $9,000. ically the W2 income compensates you for the WORK (active income) you do in the restaurant and the dividends compensate you for the RISK taken with your investment (passive income) and is why they are taxed differently. Talk your CPA (Not book keeper!) about how much W2 vs dividend income you should take from an S-corp.
S-corp income must be distributed according to ownership %. In other words, if you have a 30% partner, they get 30% of the entity income reported. (This comes after any W2 income received) In an LLC, like a partnership, income can be distributed in any % you choose. So, for example, a 30% owner could receive 50% or 20% or any other % the owners choose. This is the flexibility mentioned in the original post. If you have an investor/partner that does not work in the business you may want to put together a deal like this. I have seen scenarios where a family member invests 50% of the start-up cash for 50% ownership but the agreement is that they receive 10% of the income until bought out. In that case the LLC would provide that flexibility in the assignment of income. In the end though, pretty much the same thing can be accomplished with adjustments to the W2 income paid before the entity income is distributed.
Talk to your CPA rather than some forum on the internet. I suspect they will tell you what mine did; that S-Corp is the way to go for active income (means you work there) and LLC is preferable for passive income (investment income is not subject to FICA anyway) unless you need the flexibility of disproportional distribution in the assignment of income provided by an LLC. That is the reason I own the property my business is located in in an LLC and I own the business itself in an S-corp.
