LLCs, S Corps, and C Corps—A Comparison
Which entity type is right for you?
LLCs, S corporations, and C corporations are the three main types of for-profit
incorporated businesses. They each offer their own unique set of pros and cons,
and in order to decide the best entity type for you, all the factors need to be
taken into account—taxation, ownership structure, flexibility, and treatment
of shares or ownership interest. To help you better understand the similarities
and differences between the incorporated entity types, take a look at the chart
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Limited Liability for Owners
Each of these business types is incorporated, meaning that an LLC, S corp, or C
corp is a separate and distinct entity from the individual owners; the entity itself
is a "legal person," accountable for debts, contracts, and losses. The liability
of the individual owners is limited. Note, however, that the protection of limited
liability is only afforded when the required
corporate formalities are followed.
When we talk about the owners of an entity, we refer to either members (of an LLC)
or shareholders (of a corporation). Both LLCs and C corporations are very flexible
in ownership. They are allowed to have an unlimited amount of owners, and those
owners can be owned by either individuals (whether US citizens or not), other incorporated
businesses, or any combination thereof. Many very large businesses organize as either
an LLC or a S corp for these reasons. An S corp, on the other hand, has greater
restrictions in its ownership structure—it can have no more than 100 owners,
and those owners must be US citizens or resident aliens. S corporations cannot be
owned by other entity types.
While S corporations are limited to only one class of stock, C corporations can
have multiple classes of stock (or ownership interest) and LLCs can have multiple
classes of ownership interest.
Both LLCs and S corps are considered "pass-through entities" (also sometimes called
"flow-through entities"), which means that the business income is passed through
to the individuals as revenue, and then taxed. To contrast, a C corporation experiences
something called "double taxation" in which corporate income is taxed, the remainder
is passed through to individual owners, and then that remaining income is taxed
again at the individual level.
Because LLCs, S corps, and C corps are all incorporated entities, benefits provided
to employers—health insurance, monthly parking permits, and so on—can
If you need more specific advice about which entity type is right for you, you should
speak to a lawyer or accountant.
For more information
The following pages describe specific differences between business types.
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