LLC vs. Corporation: Which Should You Choose?
Both an LLC and a corporation protect your personal assets from business debts and lawsuits when they're properly maintained. The difference is in taxes, ownership, and how formal the business has to be.
Taxes
- LLC: pass-through taxation by default — profits are reported on the owners' personal returns. An LLC can elect to be taxed as an S corporation or C corporation.
- C corporation: the company pays corporate income tax, and shareholders pay tax again on dividends.
- S corporation: a tax election, not a separate entity type. Profits pass through to owners, but there are limits on the number and type of shareholders.
Ownership and investors
Corporations issue shares, which makes them the standard choice for startups raising venture capital or planning to offer stock options. LLCs have membership interests, which are flexible but less familiar to many investors.
Formalities
Corporations need a board of directors, officers, bylaws, regular meetings, and minutes. LLCs have fewer required formalities, though an operating agreement and good records still matter.
Which fits you?
- Choose an LLC if you want simplicity, flexibility, and pass-through taxes — common for small businesses, consultants, real estate, and family businesses.
- Choose a corporation if you plan to raise outside investment, issue stock, or eventually go public.
Your choice of state matters too. Most small businesses form in the state where they operate; forming elsewhere usually means registering in your home state anyway.
Related service: Business Registration Services →