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 below.


ISSUES
C Corporation
S Corporation
LLC
Limited Liability for Owners
Can be owned by non-US citizens or non-resident aliens  
Must be owned by US citizens or resident aliens
Can own or be owned by other business entities
 
Can have unlimited number of shareholders/members
No more
than 100
Can have more than one class of stock or ownership interest
 
Income of entity is taxed separately from income of owners
 
Tax on entity's income is paid by owners individually, not the entity
Owners can deduct 100% of their health insurance premiums
Owners can deduct business losses on individual tax returns

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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.

Members/Shareholders

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.

Stock

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.

Taxation

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.

Deductions

Because LLCs, S corps, and C corps are all incorporated entities, benefits provided to employers—health insurance, monthly parking permits, and so on—can be deducted.


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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