LLC vs S-Corp vs C-Corp
Not sure which business structure is right for you? Compare the four most common US entity types side by side, then form yours online with Incofile.
| Feature | Limited Liability Company (LLC) | S-Corporation | C-Corporation | Nonprofit Corporation |
|---|---|---|---|---|
| Liability protection | Members are generally not personally liable for business debts. | Shareholders are shielded from business liabilities. | Strong separation between the company and its owners. | Directors and members are generally protected from liabilities. |
| Taxation | Profits pass through to your personal return by default; can elect S-Corp treatment later. | Pass-through; owners take a reasonable salary plus distributions. | Taxed at the corporate level; dividends taxed again to shareholders. | Eligible for federal and state tax exemption after IRS approval. |
| Ownership | Owned by one or more members; managed by members or appointed managers. | Up to 100 shareholders, all US persons; one class of stock. | Unlimited shareholders, multiple share classes, foreign owners allowed. | No owners; run by directors and officers for the mission. |
| Flexibility & ease | Few formalities, no board or annual shareholder meetings required. | Requires payroll for owner-employees and corporate formalities. | Most formal structure: board of directors, bylaws and stock records. | Board-governed with bylaws and a stated public purpose. |
| Compliance | Annual report and registered agent in most states. | Annual meetings, minutes and state annual reports. | Annual meetings, minutes, franchise taxes in some states. | Annual filings with the state and IRS Form 990. |
| Best for | Freelancers, E-commerce sellers, Consultants, Real estate investors, Local service businesses | Established service businesses, Agencies, Profitable single-owner companies | Startups seeking investors, Tech companies, Businesses with foreign owners | Charities, Community groups, Churches, Educational programs |
| Start | Start | Start | Start |
How to choose the right structure
For most people starting out — freelancers, e-commerce sellers, consultants and small local businesses — an LLC is the best default. It gives you personal liability protection and pass-through taxation without the meetings and paperwork a corporation requires.
Once your business is consistently profitable, electing S-Corporation tax status can reduce self-employment tax, because owners take a reasonable salary plus distributions. Many owners form an LLC first and elect S-Corp treatment later.
If you plan to raise venture capital, issue stock options or eventually go public, a C-Corporation is the structure investors expect. And if your mission is charitable, educational or religious, a Nonprofit lets you apply for 501(c)(3) tax exemption.
This overview is general information, not legal or tax advice. If you're unsure, we're happy to point you in the right direction before you file.
Frequently asked questions
Is an LLC or an S-Corp better?
An LLC is simpler to run and is the best default for most small businesses. An S-Corp is a tax election that can lower self-employment tax once your profits are high enough to justify running payroll — many owners start as an LLC and elect S-Corp status later.
What is the difference between an LLC and a corporation?
An LLC offers liability protection with pass-through taxation and few formalities. A corporation (S-Corp or C-Corp) has a more formal structure with directors, bylaws and meetings; a C-Corp is taxed at the corporate level and is preferred by startups raising investment.
Which business type is best for a startup raising investment?
A C-Corporation. It allows unlimited shareholders, multiple classes of stock, foreign owners and stock options — the structure venture investors expect.