LLC vs Corporation: Which Business Structure Should You Choose?
Choose an LLC if you want simplicity and flexibility for a small business. Choose a Corporation if you plan to raise venture capital, go public, or issue stock options to employees. Most small businesses are better off as LLCs.
Corporation vs LLC: Side-by-Side Comparison
| Category | Corporation | LLC |
|---|---|---|
| Liability Protection | Full personal asset protection | Full personal asset protection |
| Default Tax Treatment | C-Corp (double taxation) or S-Corp election | Pass-through (single taxation) |
| Raising Investment | Preferred by VCs — can issue stock classes | Possible but less familiar to investors |
| Ownership Structure | Shareholders with stock | Members with ownership interests |
| Management Flexibility | Board of directors + officers required | Member-managed or manager-managed |
| Ongoing Compliance | Board meetings, minutes, bylaws, annual meetings | Annual report only in most states |
| Stock Options | Yes — ISOs and NSOs available | No stock — profits interests or units only |
| Best For | VC-backed startups, going public | Small businesses, real estate, partnerships |
Liability Protection
Full personal asset protection
Full personal asset protection
Default Tax Treatment
C-Corp (double taxation) or S-Corp election
Pass-through (single taxation)
Raising Investment
Preferred by VCs — can issue stock classes
Possible but less familiar to investors
Ownership Structure
Shareholders with stock
Members with ownership interests
Management Flexibility
Board of directors + officers required
Member-managed or manager-managed
Ongoing Compliance
Board meetings, minutes, bylaws, annual meetings
Annual report only in most states
Stock Options
Yes — ISOs and NSOs available
No stock — profits interests or units only
Best For
VC-backed startups, going public
Small businesses, real estate, partnerships
Liability Protection
Both LLCs and Corporations provide the same level of personal asset protection. Your home, savings, and personal property are shielded from business debts and lawsuits.
The corporate veil works identically for both structures. The key to maintaining protection is the same: keep personal and business finances separate, maintain proper records, and don't commingle funds.
Tax Treatment
LLCs default to pass-through taxation — profits flow to owners' personal tax returns and are taxed once. This is simpler and avoids double taxation.
Corporations default to C-Corp taxation — the company pays corporate tax (21% federal), and shareholders pay again on dividends. This "double taxation" is the biggest drawback of corporations.
However, corporations can elect S-Corp status to get pass-through taxation, and LLCs can also elect S-Corp status. So the tax treatment can be made identical for either structure.
If you plan to reinvest all profits into the business (not take distributions), C-Corp taxation can actually be advantageous since the 21% corporate rate is lower than most individual rates.
Formation Process
Both require filing with your state's Secretary of State. LLCs file Articles of Organization; Corporations file Articles of Incorporation.
Corporations have additional setup requirements: you need to create bylaws, hold an organizational meeting, elect directors and officers, and issue stock certificates. LLCs just need an operating agreement.
Formation costs are similar — state filing fees are the same in most states.
Ongoing Requirements
Corporations have significantly more ongoing requirements: annual shareholder meetings, board of directors meetings, corporate minutes, maintaining a corporate record book, and filing annual reports.
LLCs in most states only need to file an annual report and maintain a registered agent. There are no meeting requirements, no minutes to keep, and no formal governance structure required (though an operating agreement is strongly recommended).
This difference in ongoing compliance is why most small business owners prefer LLCs — less paperwork, less formality, lower risk of accidentally piercing the corporate veil through procedural errors.
Cost Comparison
Formation costs are roughly equal. State filing fees are the same for both structures in most states.
Ongoing costs differ. Corporations typically need a more expensive tax return (Form 1120 vs. Schedule C or Form 1065) and may need corporate counsel to ensure governance compliance.
If you elect S-Corp status for either structure, you'll have payroll costs ($500–$2,000/year). C-Corps that pay dividends may have higher total tax burden due to double taxation.
Which Should You Choose?
Choose Corporation if...
- You plan to raise venture capital or angel investment
- You want to go public (IPO) someday
- You need to offer stock options to attract employees
- You want to reinvest all profits at the 21% corporate tax rate
- You're building a tech startup with plans for rapid growth
Choose LLC if...
- You're a small business with no plans to raise VC funding
- You want the simplest possible business structure
- You own real estate or have multiple properties
- You want flexible profit distribution among owners
- You want to avoid double taxation without extra paperwork
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Frequently Asked Questions
Can I convert an LLC to a Corporation later?
Yes. Most states allow you to convert an LLC to a Corporation through a statutory conversion or by forming a new Corporation and merging the LLC into it. Consult a business attorney for your state's specific process.
Do investors require a Corporation?
Most venture capital firms strongly prefer C-Corporations (specifically Delaware C-Corps) because of familiar stock structures, preferred share classes, and established legal precedents. If you're seeking VC funding, a Corporation is usually the right choice.
Which is better for real estate?
LLCs are almost always better for real estate. They offer pass-through taxation (avoiding double taxation on rental income), flexible ownership structures, and you can have multiple LLCs for different properties without the governance overhead of multiple corporations.
Can a Corporation be taxed as an LLC?
Not exactly, but a Corporation can elect S-Corp status to get pass-through taxation similar to an LLC. The governance requirements (board meetings, minutes, etc.) still apply regardless of tax election.