LLC vs. S Corp vs. C Corp - Differences & More
Whether you're starting a new business or expanding an old one, formal business structures offer many benefits. An LLC, S corp, or C corp will protect you from personal liability for your business activities. It will also give your business a stronger identity that can help attract investors and customers alike.
While it's almost always a good idea to incorporate, choosing what you want to incorporate as isn't as simple. Consider who will own your business, how you want it managed, whether you'll need extra funds, and what tax structure you’ll prefer. The answers to these questions can help guide your choice of entity. Talking with a business attorney about what best suits your needs is also a good option.
To read more about the differences between each entity, take a look at the chart below.
|LLC||C corp||S corp|
|Filing requirements||Articles of organization, along with any filing fees.||Articles of incorporation, along with any filing fees.||Articles of incorporation, along with any filing fees. Form 2553 will also need to be filed with the IRS. Finally, a few states require a state-level S corp form.|
|Ongoing requirements||Annual reports and/or fees in most states, but few other requirements.||Annual fees, annual reports, annual meetings and formal recordkeeping requirements.||Must follow general corporate rules, but also needs to keep meeting the requirements for converting to an S-corp via Form 2553.|
|Ownership||Owned by its members. Each member holds a membership interest in the company that gives them certain rights and privileges.||Owned by its shareholders. Shareholders have varying degrees of ownership depending on the stock they hold.||Owned by its shareholders. Shareholders have varying degrees of ownership depending on the stock they hold.|
|Ownership restrictions||No major restrictions on who can be an owner.||No major restrictions on who can be an owner.||Can have a maximum of 100 shareholders, who must be US citizens or resident aliens. Cannot be owned by another business.|
|Company management||Either managed by its members (owners) directly, or by managers who have been appointed by the members.||Uses a threefold management system, consisting of shareholders, a board of directors, and corporate officers.||Uses a threefold management system, consisting of shareholders, a board of directors, and corporate officers.|
|Governing document||The operating agreement. It outlines what an LLC can do, and explains the roles of members and managers.||The bylaws, which explain how the corporation should be run, as well as the responsibilities of shareholders, directors, and officers.||The bylaws, which explain how the corporation should be run, as well as the responsibilities of shareholders, directors, and officers.|
|Fundraising||Can sell ownership interests in the company to raise funds. However, this usually requires the consent of all existing members, and can have significant business implications.||May sell multiple types of stock to raise funds, such as common stock and preferred stock.||May sell a single type of stock to raise funds, but ownership rules apply to any potential buyers.|
|Taxation||Taxes "pass through" to the owner by default. But an LLC can elect to be taxed as a corporation, and pay taxes directly.||Pays most taxes as a corporation. However, dividends are taxed twice: once at the corporate level, and then again at the shareholder level.||Has “pass through” taxation, which means that the shareholders pay taxes, rather than the business itself.|