Today, there are few reasons for a trader to use any form other than an LLC, which allows flexibility in being able to structure allocations of profits or losses that may not track capital. LLCs also allow flexibility in terms of allocating duties and responsibilities to various members. LLCs provide the benefit of limited liability for all members, while allowing members to participate in the management and operation of the business without the risk of incurring general partner-type unlimited liability that exists with limited partnerships. For example, under Subchapter S, the number of shareholders is limited, and corporations and non-U.S. persons may not be shareholders. The LLC is a pass-through vehicle without those restrictions.
Members can be other LLCs, trusts or corporations.
In addition, you avoid problems that occur in some states that don't recognize Subchapter S but do recognize LLCs. Some states also have their own version of Subchapter S, which is different from the federal version. Even this may not be a big disadvantage, though, because it's generally believed that because LLC statutes are structured like limited partnership statutes, courts will analogize to the mounds of partnership decisions to interpret LLC statutes. Very important are various provisions that address transference of ownership or exit strategies. The company has a legitimate reason to disassociate itself from the wrongdoer, and might have to, to continue business.