What business type is right for you?
When you’re starting a new business, you want to determine the business structure that’s right for you. What’s the difference between a limited liability company (LLC) and a corporation (Inc.)? And how is a C corporation different from an S corporation? Use these charts to help decide what business type is best for your needs.
What is an S corporation?
After you create a corporation or LLC, you also have the opportunity to decide how you’d like your business to be taxed.
Single owner LLCs can be taxed either as a sole proprietorship or a corporation. LLCs with more than one owner can be taxed either as a partnership or a corporation. Income from LLCs treated as sole proprietorships or partnerships is reported directly on the owner’s individual tax returns.
New corporations, as well as LLCs considering corporate taxation can choose between filing taxes as a C corporation (“C corp”) or an S corporation (“S corp”). An S corp is considered a “pass-through entity,” which means the business itself isn’t taxed. Instead, income is reported on the owners’ personal tax returns. Businesses taxed as C corporations are not pass through entities. Income is taxed at the corporate level, and, if dividends are distributed, at the individual level as well.
You don’t have to decide about S corp status right away. You have 75 days after the formation of your business to file with the IRS.