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

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 corp get pass-through income like in an LLC and the owners' personal property is protected against business liabilities. An S corp has 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 corp that 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 corp or LLC, depending on the amount of your tax bill. In an LLC vs S corp comparison, 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 corp or LLC, a C corp protects its owners from the company's assets and liabilities.

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 corp or C corp. An S corp can 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.

The LLC model is the least complex of the lot, followed by an S corp and a CCorp. But each serves different needs.

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