Choosing the right business structure affects your personal liability, taxes, paperwork, and ability to raise capital. Here's a comprehensive comparison.
Pros: Simplest and cheapest to form. Complete control. Pass-through taxation. Minimal paperwork.
Cons: Unlimited personal liability. Difficult to raise capital. Business ends with owner's death.
Pros: Personal liability protection. Flexible taxation (can choose pass-through or corporate). Less formality than a corporation. Flexible management structure.
Cons: Self-employment taxes on all profits (unless electing S-corp taxation). State fees vary widely. Some states charge annual franchise taxes.
Pros: Personal liability protection. Pass-through taxation avoids double taxation. Can reduce self-employment taxes by paying reasonable salary and taking remaining profits as distributions.
Cons: Restrictions on number and type of shareholders (100 max, U.S. residents/citizens only). One class of stock only. More formalities than LLC.
Pros: Strongest liability protection. Unlimited shareholders. Multiple stock classes. Most attractive to investors and VCs. Flat 21% corporate tax rate.
Cons: Double taxation (corporate income taxed, then dividends taxed). Most regulations and formalities. Expensive to form and maintain.
Solo service business: Start with LLC. Planning to seek VC funding: C-Corp (Delaware). Small team wanting tax savings: LLC with S-Corp election. Large company with many investors: C-Corp.