LLC vs Corporation

Last updated on 16 Apr 2025

LLC or Corporation: What's Best for Your Business?

What is an LLC? Why Might You Want to Use One?

An LLC is a business form that keeps your personal assets, like your home or bank accounts, separate from business issues such as debt or lawsuits. It is simple to form and allows you flexibility in how your business is taxed. Depending on the way you structure your LLC, it can be taxed as a sole proprietorship, partnership, or corporation.

LLCs are favored by small businesses due to their protection and ease of management compared to corporations.

Domestic vs. Foreign LLC

You can establish an LLC in your state of residence (termed a domestic LLC) or in another state (termed a foreign LLC). Most companies establish a domestic LLC, but possibly a reason to establish a foreign LLC if you intend to grow. The decision lies with what state your business is located and where you would like to administer taxes and regulation.

What is a Corporation? C-Corp vs. S-Corp

Corporations are larger and more complex business structures, and there are two main types: C-Corporation (C-Corp) and S-Corporation (S-Corp).

C-Corporation (C-Corp)

A C-Corp is suitable for companies that intend to become large, raise investors, or even go public. C-Corps may have unlimited shareholders, so they are suitable for companies that require outside capital. They do undergo double taxation, as the company pays taxes on earnings, and the shareholders pay taxes on dividends (earnings that they receive).

S-Corporation (S-Corp)

An S-Corp is also like an LLC in that your assets are protected. S-Corps, though, also enable owners to take a salary and are taxed similarly to a pass-through entity (profits and losses are passed through to the owner's personal tax return). S-Corps have a limitation of 100 shareholders, and shareholders have to be U.S. residents or citizens.

LLC vs. Corporation: What's Right for Your Business?

Selecting between an LLC and a corporation will rely on the size, objectives, and plans for your business.

LLCs are perfect for:

Small companies that need protection from personal liability but not a lot of formalities.

Corporations are suitable for:

Companies that intend to expand quickly, raise capital from investors, or become public. They are more regulated and require more paperwork but provide excellent protection and additional methods to raise capital.

Why Form a Corporation?

Following are a couple of reasons why some companies opt to include:

Limited Liability: Both corporations and LLCs keep your personal assets safe from business debt and lawsuits.

Longer Life: Corporations continue even when an owner leaves or dies. This provides for easier passing to others or sale of the business.

More Credibility: Being a corporation can make your company more credible with customers, partners, and investors.

Raising Money: Corporations can sell stock to raise money for growth and expansion.

Clear Management: Corporations have a clear management structure, making decision-making easier as the business grows.

Top LLC and Corporation Formation Services

Northwest Registered Agent

Northwest Registered Agent is a reliable provider of LLC and corporation formation service, starting at $100 plus state charges. They offer standard features such as document filing, lifetime customer service, and an entire year of registered agent service—along with robust privacy protection to safeguard your personal information.

Incfile

Incfile is another excellent choice when it comes to creating an LLC or corporation. They begin at $0 plus state charges, and they also come with a free registered agent for the first year. They've assisted more than a million companies and come with standard formation services such as preparing and submitting your company documents.

Making the Right Decision: LLC vs. Corporation

Your choice of business form is an important one that influences your taxes, your liability, and your ability to expand in the future. What your business will need currently and what you envision for your future are things you should consider.

For most small companies, it is easiest and cheapest to start out as an LLC in your home state. If you're going to expand rapidly or take investment from venture capitalists, a corporation may be the way to go.

A tax advisor or business consultant can also assist you in making the proper choice.