Business Type Options

The Limited Liability Corporation (LLC), S-Corporation (S-Corp), and C-Corporation (C-Corp) are three distinct business structures, each with its own advantages, disadvantages, and tax implications. Here’s a breakdown of the main differences:

Comparison Between LLC, S-Corp, and C-Corp

Legal Structure and Liability

• LLC: Provides limited liability protection to its owners (called members). It's a hybrid entity combining elements of a corporation and partnership. More flexible in structure compared to corporations.

• S-Corp: Also provides limited liability protection and is a corporation that has elected pass-through taxation status.

• C-Corp: Traditional corporation with limited liability protection, where the corporation is a separate legal entity from its owners.

Taxation

• LLC: Pass-through taxation by default, meaning profits and losses are passed to members' personal tax returns. Can opt to be taxed as an S-Corp or C-Corp.

• S-Corp: Pass-through taxation, avoiding double taxation. Owners can take salaries subject to payroll taxes and the remaining profits as dividends not subject to self-employment taxes.

• C-Corp: Subject to double taxation where the corporation pays taxes on its profits, and shareholders are taxed on dividends.

Ownership and Restrictions

• LLC: No limit on the number of owners. Owners can include individuals, other LLCs, corporations, and foreign entities. Profits can be distributed flexibly.

• S-Corp: Limited to 100 shareholders, who must be U.S. citizens/residents. Only individuals, certain trusts, and estates can be shareholders.

• C-Corp: No limit on the number of shareholders, and it can issue multiple classes of stock, making it ideal for raising capital.

Management and Formalities

• LLC: Fewer formalities, not required to hold board meetings, or maintain extensive records.

• S-Corp: Must adhere to corporate formalities, such as holding regular board and shareholder meetings.

• C-Corp: Must follow strict corporate formalities, including meetings and record-keeping.

Raising Capital

• LLC: Cannot issue stock, but can attract investors through the sale of membership interests.

• S-Corp: Limited ability to raise capital, restricted to one class of stock.

• C-Corp: Can raise capital by issuing multiple classes of stock and having unlimited shareholders.

Best For

• LLC: Small to medium-sized businesses seeking flexibility and liability protection with minimal corporate formalities.

• S-Corp: Small businesses that want to avoid double taxation and minimize self-employment taxes.

• C-Corp: Larger businesses that plan to raise capital, go public, or issue stock.