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.
Traditional and most common type of corporation, generally taxed more than S-Corp or LLC.
Advantages
Disadvantages
Companies that choose to be C-Corporations are often:
Similar to C-Corp, with some advantages for qualified small businesses.
Advantages
Disadvantages
Companies that choose to be S-Corporations are often:
Newest type of company with the most flexible management structure.
Advantages
Disadvantages
Companies that choose to be LLCs are often:
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