Guides / Formation

What's the Difference Between an LLC and a Corporation?

A side-by-side breakdown of LLCs and Corporations — taxation, liability, ownership, governance, and which one fits your business.

TL;DR

Choose an LLC for simplicity, pass-through taxes, and flexibility. Choose a Corporation if you plan to raise venture capital, issue stock, or eventually go public.

Two paths, two playbooks

Limited Liability Company

LLC

A flexible legal structure that protects your personal assets while keeping taxes and paperwork simple. Best for small businesses, freelancers, and partnerships.

  • Pass-through taxation by default
  • Personal liability protection for members
  • Minimal ongoing compliance
  • Flexible profit distribution and management
C-Corp or S-Corp

Corporation

A separate legal entity owned by shareholders. Built for raising capital, issuing equity, and scaling. The default choice for venture-backed startups.

  • Strongest liability separation from owners
  • Can issue stock and multiple share classes
  • Preferred by VCs and institutional investors
  • Perpetual existence — survives owner changes

Side-by-side comparison

The seven dimensions that matter most when choosing between an LLC and a Corporation.

Personal Liability
LLCMembers shielded from business debts and lawsuits.
CorporationShareholders shielded — strongest legal separation of any entity type.
Default Taxation
LLCPass-through by default. Profits flow to members and are taxed once on personal returns.
CorporationC-Corps are taxed at the corporate level (21%), then again on shareholder dividends.
Ownership
LLCOwners are called "members." Unlimited members allowed, including foreign individuals and other entities.
CorporationOwners are "shareholders." C-Corps have unlimited shareholders; S-Corps cap at 100 US individuals.
Management
LLCMember-managed or manager-managed. Highly flexible — defined in the operating agreement.
CorporationBoard of directors elected by shareholders, who appoint officers (CEO, CFO, etc).
Raising Capital
LLCCan take on investors but not issue stock. Less attractive to VCs and institutional investors.
CorporationCan issue multiple classes of stock. Preferred structure for venture capital and IPOs.
Ongoing Compliance
LLCAnnual report and franchise tax in most states. Minimal recordkeeping.
CorporationAnnual reports, board minutes, shareholder meetings, bylaws, and stock ledgers.
Setup & Maintenance Cost
LLCLower setup and ongoing fees in most states.
CorporationSlightly higher state fees and more administrative overhead.

A closer look at taxation

Tax treatment is the single biggest deciding factor for most founders.

LLC (default)

Pass-through

The LLC itself pays no federal income tax. Profits and losses flow through to members and are reported on personal returns. Self-employment tax applies on active income.

C-Corporation

Double taxation

Profits are taxed at the corporate rate (21%), and shareholders pay tax again on any dividends. The trade-off: clean cap tables, QSBS eligibility, and unlimited reinvestment of retained earnings.

S-Corporation

Pass-through with payroll

An S-Corp election lets an LLC or Corp pass profits through while letting owners take a reasonable salary plus distributions — often saving on self-employment tax. Capped at 100 US shareholders.

Which one is right for you?

A quick decision matrix based on what you're building.

Pick an LLC if you're...

  • A solo founder, freelancer, consultant, or small partnership.
  • Bootstrapping or self-funding without outside investors.
  • Holding real estate or running a service business.
  • Looking for the cheapest, simplest way to limit personal liability.

Pick a Corporation if you're...

  • Raising venture capital or planning to issue equity to employees.
  • Building a high-growth startup with multiple co-founders.
  • Targeting an IPO or acquisition exit.
  • Reinvesting most profits rather than distributing them.

Common misconceptions

"LLCs can't have investors."

They can — but most professional investors require corporations because of stock issuance, QSBS treatment, and clean cap tables.

"Corporations always pay double tax."

Only C-Corps pay tax twice. An S-Corp election lets a corporation be taxed as a pass-through entity.

"An LLC isn't a real company."

An LLC is a fully recognized legal entity. It can sign contracts, own property, hire employees, and protect personal assets just like a corporation.

"You can't change your mind later."

You can convert an LLC to a Corporation (or vice versa) — but the process involves legal and tax filings, so choosing well upfront saves time and money.

Formation

Ready to file?

Form your LLC, C-Corp, or S-Corp in any US state. We handle the paperwork, state filings, and ongoing compliance — so you can focus on building.

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