03.09.20163 min read

S Corp vs. C Corp vs. LLC - What Should Your Business Be?

By Rieva Lesonsky 


The biggest reason small business owners choose to incorporate or form a limited liability company (LLC) legal structure is to protect themselves from the financial and legal liabilities associated with owning a business. Don’t assume you can’t incorporate just because you’re a one-person operation—but do know that the IRS has specific rules set up to make sure small business owners don’t abuse the system. Here’s a look at the different forms of business corporations so you can make a S Corp vs. LLC vs. C Corp comparison.:

A corporation must file articles of incorporation with the state and hold annual shareholder meetings, including taking minutes. Even if you’re the only shareholder, you must be in compliance with these procedures. Owners and shareholders are not personally or financially responsible for the corporation’s debts and responsibilities; shareholders are only responsible for their own investments. If there are dividends paid, shareholders can be taxed on those profits received. The corporation pays taxes on its profits and can claim its losses. As a separate entity, it continues to exist even after the death of a shareholder or transfer of the shareholder’s shares.

C Corporations:

In a C corporation, companies can sell stock or shares with no limit on the number of shareholders. Public companies must be structured as a C corporation. Owners of a C corporation pay a double tax: The earnings of the company are taxed, and shareholders pay taxes on any dividends received. However, if the owners take a salary, the corporation is not required to pay tax on those earnings; the salary payments are considered a business expense.

S Corporations:

An S Corporation pays no federal income taxes. Instead, the business’s income and losses pass through to the shareholders, who report them on their personal tax returns. This method is considered “single taxation,” in contrast to a C corporation’s “double taxation.” While it may seem more attractive to be taxed only once, shareholders are taxed for any income the company has, even if they did not receive any portion of that income, where with a C corporation, shareholders are taxed only if dividends are issued. In addition, S corporation officers must be paid a “reasonable salary” even if the company isn’t profitable, and the company is limited to a maximum of 100 shareholders.

Limited Liability Company (LLC):

LLCs file similar articles of organization with the state, but can have a more flexible management structure than a corporation requires. The LLC protects members from personal liability in case of judgment or debt; however, profits and losses are reported on each owner’s individual tax return. That makes the LLC more suited to a one-person owner, because shareholders may not like the pass-through taxation. If there is only one owner/member, the company’s income is reported on the individual’s Schedule C. If there is more than one owner, the individuals are treated as a partnership. 

Next Steps:

Get crystal clear on your small business brand


Was this post helpful?
Created with Sketch.
Infusionsoft cornerstone spinner
close button
Subscribe to our weekly newsletter!

5 Reasons to Subscribe:

1. Weekly tips to dominate sales and marketing

At our core, we're focused on helping you become a sales and marketing machine. We tap into the genius of the best salesfolks and marketers out there to give you daily tips to grow your leads, make more sales, and keep more customers.

2. Expert small business resources that cost you zero dollars

Want to go deep? We have you covered with free guides, webinars, and tools on a range of topics from marketing automation, CRM, and digital marketing to building sales and marketing strategies from the ground up. All for free. All for you.

3. We're focused 100 percent on small business success

We exist for one reason: helping small businesses succeed. We give you the ideas and insights you need to blow the competition out of the water. We serve business owners who are hungry to put in the hard work to grow their business and own the market.

4. We do the work for you

Running a small business is a 110 percent endeavor. You don't have time to surf Internet for the best small business insights and ideas out there. We'll do that for you with the best original content from our team and from industry experts and small business owners.

5. But wait, there's more!

Small business success means more than just sales and marketing, so we also hit on a range of topics to help your small business thrive, including personal and business growth, customer service, and business management.

6. Righteous GIFs

OK, we said five reasons, but we like to overdeliver...and GIFs. We really like GIFs. You're bound to see some righteous ones.

GIF of Ferris Bueler principal's assistant

P.S. We'll never give out your information. We'll only use it to send you awesome content and resources, if you're cool with that.