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.
- Shields personal assets from business liability
- Requires separation of business and personal finances
- Allowable in all 50 states and the District of Columbia
- Highly flexible management structure
- Flexible tax reporting options
- Shields personal assets from business liability
- Requires separation of business and personal finances
- Allowable in all 50 states and the District of Columbia
- Preferred by outside investors
- Preferred for IPO
- Recognized outside of the United States
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
C Designation
- Owners pay personal income tax on profits
- Business must pay corporate income tax
S Designation
- Owners pay personal income tax on profits
- All business income/loss is passed through to owners each year.
- No more than 100 shareholders
- Shareholders must be U.S. citizens or resident aliens
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.