Choosing an entity shouldn’t be confusing. This practical guide compares liability, taxes, ownership, payroll, investors, and compliance—so you can pick the right structure with confidence.
Flexible, simple, pass‑through by default. Best for most small businesses and partnerships.
Standard for startups raising venture capital or planning an IPO. Allows multiple share classes.
A tax election (not an entity). Can reduce self‑employment tax if you pay yourself a reasonable salary and take distributions.
Limited liability protection for owners
Pass‑through taxation by default (no double tax)
Flexible management and ownership structure
Light formalities (no board or annual meetings required in most states)
Self‑employment tax on all net profits (unless electing S‑Corp)
VCs often prefer corporations over LLCs
Preferred by venture capital and institutional investors
Multiple share classes and equity instruments (options, RSUs)
Clear corporate governance and legal precedent (esp. Delaware)
Double taxation (corporate tax + shareholder dividends)
More formalities: board, bylaws, annual meetings, minutes
Potential savings on self‑employment taxes
Pass‑through taxation (no corporate‑level tax)
Eligibility limits: ≤100 shareholders, all U.S. persons, one class of stock
Payroll required for owners (reasonable salary, payroll filings)
| Factor | LLC | C‑Corp | S‑Corp |
|---|---|---|---|
| Liability Protection | Yes | Yes | Yes (via LLC or Corp with S‑Election) |
| Taxation | Pass‑through (default) | Corporate tax + dividends | Pass‑through (salary + distributions) |
| Owner Payroll Required | No | No (unless employed) | Yes (reasonable salary) |
| Investors / VC Friendly | Sometimes | Yes (esp. Delaware) | Sometimes (with constraints) |
| Share Classes | N/A (units) | Multiple classes | One class only |
| Admin Complexity | Low | High | Medium (payroll + filings) |
An S‑Corp is a tax election for an LLC or corporation. It can reduce self‑employment taxes by paying the owner a reasonable salary (subject to payroll taxes) and taking remaining profits as distributions.
Eligibility: ≤100 shareholders, all U.S. persons, one class of stock; some entities and owners are excluded.
Will you raise venture capital or issue equity broadly? → Choose a Delaware C‑Corp.
Are you a small business/solo with profits after paying yourself? → LLC with S‑Corp election may help.
Do you want maximum flexibility and simplicity? → LLC.