Should I form a C-Corp, S-Corp or LLC?

All Corporations and LLCs generally shield their shareholders from personal liability arising from business debts and business lawsuits.

C-Corporation


Traditional and most common type of corporation, generally taxed more than S-Corp or LLC.

Advantages

  • Limits personal liability from business debts and business lawsuits
  • No restrictions on ownership
  • Easy to transfer stock
  • C-Corporations can offer public stock
  • Formation state fee may be less than LLC

Disadvantages

  • Profits are "double taxed" meaning taxed at corporate and individual level

Companies that choose to be C-Corporations are often:
  • Large companies
  • Publicly traded companies
  • Companies that are seeking investment from passive investors who prefer to not be taxed as company grows

S-Corporation


Similar to C-Corp, with some advantages for qualified small businesses.

Advantages

  • Limits personal liability from business debts and business lawsuits
  • Potentially favorable taxation; avoids the "double tax" of a C-Corp
  • May also avoid the "self-employment tax" that is common for most LLCs

Disadvantages

  • No more than 100 company shareholders
  • All shareholders must be U.S. citizens or lawful permanent residents and not other corporations or LLCs

Companies that choose to be S-Corporations are often:
  • Selling products (retail, wholesale)
  • Selling services with employees and or independent contractors
    Service companies with no employees are often LLCs

LLC (Limited Liability Company)


Newest type of company with the most flexible management structure.

Advantages

  • Limits personal liability from business debts and business lawsuits
  • No restrictions on ownership
  • Formation and ownership requirements are less stringent than with C-Corp or S-Corp

Disadvantages

  • Some states require LLCs to have more than one member
  • Transferring ownership is more complicated than with C-Corp or S-Corp
  • Potentially higher taxation than S-Corp

Companies that choose to be LLCs are often:
  • Service companies where the owner is providing a service, e.g. graphic/website design, dog walking, cleaning services
  • Real estate investment companies
  • Smaller companies with international investors
  • Smaller companies with entity investors
  • General investment companies