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LLC vs S Corp vs C Corp: Which Is Better for Your Business?

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LLC vs S Corpvs C Corp: Which Is Better for Your Business?

To execute and scale your business idea, you have to first organize it in a business structure. The right kind of business structure could decide the success and failure of your efforts. Every state has different kinds of business structures that suit different circumstances and business needs, including LLCs, sole proprietorships, S Corps, NPOs and C Corps. Some of the most common incorporation structures are LLC, S Corps and C Corps, and each has very different characteristics, and it's important to understand them before you make a decision on how to incorporate your business.

Table of contents

Pros and cons LLC vs SCorp vs CCorp...Read more

How does ownership work in an LLC, S Corpor C Corp?...Read more

How does an LLC, S Corpand C Corp work?...Read more

Taxes in an LLC, S Corpand C Corp...Read more

Pros and cons LLC vs SCorp vs CCorp

The basic definition of an LLC is a legal entity where personal assets like the partners' houses, properties and stocks are protected if the company suffers a loss. This is what's meant by LLC, or limited liability company. It protects the owners of the company against the company's liabilities and debts. For example, if the company is sued by an external party and is directed by the court to cover damages, the company's partners are immune to any liabilities. So, if the company cannot pay the damages, the partners are protected and can't be pursued to pay for any liabilities and debts with their assets. An LLC is a hybrid partnership but has some features of a corporation regarding liabilities. We could say that an LLC is much closer to a corporation than a partnership, but a limited liability company is much easier to establish. An S corporation or S corp has some similarities to an LLC. For example, the owners of an S Corpget pass-through income like in an LLC and the owners' personal property is protected against business liabilities. An S Corphas more credibility because it comes with more oversight, thanks to its board of directors. It's mandatory to have a board of directors in an S Corpthat looks over the management and balance sheets of the company. You can have up to 100 shareholders in the company, which get paid dividends or cash payments from profits. In an S corp, also known as the S subchapter, it's possible to have a hybrid business. For example, a company can work as an LLC and an S corp, with you having the freedom to choose things like whether the company is taxed as an S Corpor LLC, depending on the amount of your tax bill. In an LLC vs S Corpcomparison, the latter has a much longer list of regulations as per the IRS. A C Corp, also known as a C Corporation is a type of business structure wherein the business owners are taxed separately from the business entity. You could say it's the upgrade from an LLC or S corp. However, a C Corp is also liable to pay corporate income taxes. So in a C Corp, the owners also pay personal taxes, while the corporation pays corporate taxes. Like an S Corpor LLC, a C Corp protects its owners from the company's assets and liabilities.
Image comparing LLC, S Corp, and C Corp business structures. LLC has unlimited owners and no board of directors required. S Corpallows up to 100 shareholders and a board of directors. C Corp has a board of directors, designated officials, and shareholders.

How does ownership work in an LLC, S Corpor C Corp?

Ownership works differently in every kind of business structure. Here's how it works in the most common three corporate structures. An LLC allows you to have an unlimited number of owners. Also known as members, the owners can be U.S. citizens, non-US citizens or even non-US residents. An LLC can also have another business as a member. LLCs require significantly less paperwork than an S Corpor C Corp. An S Corpcan have as many as 100 shareholders. S Corps are not as flexible as an LLC, and there are a number of restrictions regarding ownership. For example, a company cannot own an S corp; only individuals can. This means that other S Corps, C Corps, NPOs, sole proprietorships and partnerships can't have ownership stakes in an S corporation. A C Corporation can have an unlimited number of shareholders/investors. Those shareholders vote on the board of directors in a C Corp.
Image with text describing the unique selling propositions of LLC, S Corp, and C Corp corporate structures. Highlights include flexibility, tax benefits, and access to capital. No mention of self-employment, 1099, freelancer, or taxes.

How does an LLC, S Corpand C Corp work?

The LLC model is the least complex of the lot, followed by an S Corpand a CCorp. But each serves different needs.
Image with text comparing LLC, S Corp, and C Corp. Pros and cons listed for each, including ease of establishment, fees, complexity, regulations, and number of owners. No mention of self employed, 1099, freelancer, or taxes.

How an LLC operates

How an S Corpoperates

How a C Corp works

Taxes in an LLC, S Corpand C Corp

All three business structures have different taxation models intended to fit businesses of varying size.

Taxes in an LLC

Taxes in an S corp

Taxes in a CCorp

Partnership

Partnerships allow people with different skill-sets to work on the same business objective while passing the profits and liabilities to the partners.

NPO

Nonprofit status may be right for your business if you're ready to incorporate and your organization seeks to benefit society.

S Corp

An S Corpcomes with different tax, formation and shareholder requirements. It's an option for business owners looking to save on corporate taxes.

C Corp

C Corporations are the most common type of business entity. Your business may benefit from this option for a lasting business.

LLC

Forming an LLC is a great option for business owners due to its tax flexibility, liability protection and affordability.

Sole Proprietor

A sole proprietorship is a business that has only one employee, who is also the owner. Check how sole proprietors file their taxes.

Partnership

Partnerships allow people with different skill-sets to work on the same business objective while passing the profits and liabilities to the partners.

NPO

Nonprofit status may be right for your business if you're ready to incorporate and your organization seeks to benefit society.

S Corp

An S Corpcomes with different tax, formation and shareholder requirements. It's an option for business owners looking to save on corporate taxes.

C Corp

C Corporations are the most common type of business entity. Your business may benefit from this option for a lasting business.

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