Having a tough time choosing the right legal entity for your business?

You’re not alone. Budding entrepreneurs often get conflicting advice about which business entity they should opt for.

LLC vs. Corporation: Which one is the best?

The truth is that both of these legal business entities have their own advantages and disadvantages. The one that will serve you the best totally depends on the ownership, operational, and taxation needs of you, and your business.

You might have questions like:

What is an LLC? What is a Corporation? What are the major differences between an LLC and a Corporation? And, which one is right for me?

This post will help you answer these questions and choose the type of business entity that is best for you. Let’s start the LLC vs. Corporation discussion by defining what these two business entities are all about.

What is an LLC?

An LLC or a Limited Liability Company is one of the most common legal entity types used by individuals and small business owners due to the flexibility it offers. You can either form a Single-Member LLC or a Multi-Member LLC to conduct business in the United States.

Setting up an LLC offers limited liability protection, minimal compliance requirements, a flexible management structure, and pass-through taxation.

Here’s a breakdown of some of its advantages and disadvantages:

Advantages of an LLC

LLCs are common amongst most small business owners for the following reasons:

  • They have limited liability which protects members or owners from personal financial responsibility of business debts and litigations.
  • Company income is treated as member income, therefore they have pass-through taxation. This way they avoid double taxation.
  • Compared to corporations, LLCs have fewer legal and formal requirements and are easier to learn because of their straightforward business structure.
  • Members can manage the business themselves or select a manager to do it on their behalf.
  • LLCs allow for single-member status, making it possible for the owner to enjoy full control of the decision-making process.

Disadvantages Of An LLC

Although there are plenty of upsides to starting an LLC, it presents its own share of disadvantages. These include:

  • LLC members still have to pay self-employment tax, comprising 12.4% social security tax and 2.9% Medicare tax as a part of their personal tax returns.
  • Under certain circumstances, LLCs can get dissolved, exposing members to liability risk. These include if a member dies or leaves, if the company fails to file compliance reports, in the event of a merger, and so forth.
  • Each state has different rules and regulations governing LLCs, which can be confusing for LLCs operating in multiple states.

What is a Corporation?

A Corporation, also known as a “C-Corp,” is a legal business entity established by a charter granting certain legal rights, privileges, and liabilities. An individual or a group of people can form a Corporation with a charter from the Secretary of the State.

Another less common form of Corporation is the S-Corporation or “S-Corp” which is a pass-through entity just like an LLC. Here, unlike in a C-Corp, owners get taxed on the company’s profit or losses.

Forming a Corporation offers business owners infinite growth potential, including issuing an Initial Public Offering. You can sell stock, attract investors, and have multiple shareholders.

Advantages of a Corporation

Despite sharing some benefits with LLCs, like limited liability, Corporations have some distinct advantages that may be suitable for your business.

  • The limited liability protection provided by corporations is the most solid of all entity types. While LLCs have the same provision, there are easier ways this protection can be breached, such as withdrawal of a member.
  • Corporations have more permanence and perpetuity as compared to LLCs. This is because ownership is based on shares that are easily transferable. This gives the company more flexibility and a chance to exist longer.
  • Corporations give you the most access to capital. You can publicly trade your company to get funding, an option no other entity enjoys. This gives your company an opportunity to grow exponentially. But this isn’t available with S-Corporations.
  • With S-Corporations, your company has the option to divide taxes between the company and shareholders and enjoy pass-through tax benefits. Salaries allocated to owners are only subject to income tax.

Disadvantages of a Corporation

Corporations are, however, not for every entrepreneur. With the formalities and paperwork involved, you may end up spending way more time and money than you signed up for.

Here are some downsides to forming a Corporation you may want to know beforehand.

  • The process involved in incorporation is often lengthy. Besides filing your Articles of Incorporation with your secretary of state, you’ll still have to file extensive reports and take care of a lot of paperwork. Some of these include appointing a board of directors, drafting and maintaining corporate bylaws, etc.
  • Besides having a lengthy formation process, Corporations also tend to have rigid protocols and subsequent formalities. You’ll need to follow these protocols to retain your Corporation status.
    For instance, you’ll have to follow your company bylaws, hold annual general meetings, submit annual reports, and so forth.
  • Corporations (C-corps) have double taxation. This means that their income is taxed both at the corporate level and at the shareholder level.
  • Corporations are costly to form and run and you may likely need lots of startup funding to get off the ground. Established Corporations however have an easier time raising funds.
  • Some Corporations, like S-Corps have restrictions on the number of shareholders they can have.

LLC vs. Corporation: Understanding the Difference

The best legal entity type for your business will depend on how you plan to establish and run your company.

Before making the LLC vs. Corporation choice, you need to answer a few questions:

  • How many owners and members will your business have?
  • Are you looking for capital investments from outside sources?
  • How do you want your business revenue to be taxed?
  • What are your expansion plans?
  • How much revenue do you expect to make in the first year?
  • Do you want to take a salary from your business?

Once you figure out the answers to these questions, it will be much easier for you to choose the right entity type for your business.

To help you understand how LLCs compare to Corporations, here’s a quick summary of their differences.



Management Structure

LLCs have a more flexible management structure. Members can choose to either be involved directly in the management or choose representatives.Corporations have a much more rigid management structure. Shareholders are barely involved in management. They instead elect a board of directors to represent them and officers to carry out the day-to-day activities.


LLCs can be owned by a single member or multiple members, there are no limits to the number. They cannot be traded publicly, however, so the ownership remains private.C-Corporations can trade publicly and have over one shareholder, and no maximum limit. S-Corps, however, are only allowed a maximum of 100 shareholders.


LLCs enjoy pass-through taxation, meaning that they only get taxed at the owner level, and not at the company levelC-Corporations have double taxation, i.e., they get taxed at both the corporate and shareholder level. They, however, have the option to file for S-Corp status and enjoy pass-through taxation as well.

Outside Investment

Since LLCs can’t trade publicly, they can’t raise capital by selling their stock. This limits their access to outside investment.Corporations have unlimited access to outside investment as they can trade their stock publicly

Here’s everything in detail.

LLC vs. Corporation: Liability Protection

Both LLCs and Corporations offer personal liability protection.

Your company becomes a separate legal entity. If it suffers a loss, these business entities will protect your personal assets, such as your house, car, personal bank accounts, from being used to pay off the debts. You will only lose the money that you have invested in your business.

Whether you form an LLC or a Corporation, you can benefit from the same type of liability protection.

LLC vs. Corporation: Business Formation Process

You need to file certain legal documents with the Secretary of the State to form either of these business entities. 

To form an LLC, you need to file Articles of Organization with the state. To establish a Corporation, you need to file Articles of Incorporation. The state filing fee for each of these documents varies from state to state. Corporations will have higher fees than LLCs. We can take care of the filing process for you with our LLC filing and incorporation services. 

The Articles of Incorporation (Corporation) requires that you fill out more information about your business than the Articles of Organization (LLC), and Corporations are required to designate the number of shares that can be issued to the owners, and the minimum value (par value) of the shares.

Along with these, you also need to create a document that clearly defines the roles and responsibilities of all people involved and details about internal management.

For LLCs, this document is called an LLC Operating Agreement while in the case of a Corporation, it is called Corporation Bylaws. We provide you with these documents as a part of our filing service, for free, which otherwise could be expensive to obtain from a lawyer.

LLC vs. Corporation – Which one is better based on their formation processes?

If you want less information about your business to be available to the public, LLCs are a better choice. LLCs also require less legal requirements and paperwork than Corporations do.

However, the state filing process for both LLC and Corporation formation can be tedious and time consuming. Take advantage of our LLC filing and Incorporation packages for hassle-free paperwork and expedited application processing.

LLC vs. Corporation: Management Structure

LLCs have a more flexible management structure compared to Corporations.

For instance, if you form an LLC, you can either choose to run a Member-Manged LLC, where all members take part in decision-making, or you can run a Manager-Managed LLC, where you appoint a manager or managers to make all important decisions for the LLC on your behalf.

This makes LLCs less formal than Corporations, which have a standard management structure.

If you form a Corporation, you need to have:

  • A board of directors elected by shareholders and given the responsibility to make all major decisions about the company and handle all management responsibilities.
  • Officers who run the business day-to-day
  • Shareholders who own stock in the company, but do not participate in the day-to-day functioning. They, however, make some major decisions concerning the company.

Corporations have to set bylaws that detail how the company runs.

A Corporation allows you to easily transfer shares from one person to another at any point in time. This makes profit-sharing super easy.

LLC vs. Corporation: Which one is better with regard to management?

It depends.

If you are looking for outside investment, you may prefer to set up a Corporation. However, if you want to fund your business on your own, an LLC may be best for you.

LLC vs. Corporation: Taxation

Limited Liability Companies and Corporations get taxed differently. This is one of the main distinctions between the two structures. LLCs offer greater flexibility in taxation than a Corporation.

Here’s how taxation for each entity works.

Taxation in LLCs

By forming an LLC, you can choose whether you want it to be taxed as a Sole Proprietor (for single-member LLCs), Partnership (for multi-member LLCs), or a Corporation.

LLCs offer a pass-through taxation option, as one of their many benefits.

What is pass-through taxation?

It means that any business profits and losses are passed on to the owners, who report those earnings on their personal income tax returns, the LLC itself does not owe taxes at the company level, although it is required to submit a tax return for the LLC every year.

Since LLCs only report taxes at the owner level, it’s much easier for them to file their returns with the IRS compared to corporations.

Just like Sole Proprietors, the rate at which each owner gets taxed depends on their total income. You may also need to pay self-employment taxes along with your income tax.

In some states, LLCs also get to pay franchise taxes, for the right to operate as a legal entity in said state. It’s an annual fee that varies by state.

With LLCs, failure to pay taxes attracts penalties, or much worse, may lead to an involuntary closure of your business.

Taxation in Corporations

Corporations hardly offer any flexibility regarding taxes.

In fact, the greatest disadvantage of forming a Corporation is double taxation. A Corporation pays taxes on its profits. When shareholders receive dividends, they also have to pay personal income tax on them.

While we view double taxation as a disadvantage for Corporations, there are allowable tax deductions only available to this entity type that overall add up to noteworthy savings. For instance, Corporations get to deduct all business operational costs including employee benefits.

Taxation in S-Corporations

Businesses that wish to retain their Corporation status while enjoying the benefits of pass-through taxation can apply for S-Corp status. For your C-Corp to qualify as an S-Corp, you’ll need to meet the following criteria:

  • Have up to 100 shareholders only
  • Shareholders should be US Citizens residing in the US
  • Have only one type of stock
  • Owners cannot be other corporate entities as is the case with LLCs. they can only be individuals, trusts, and estates.

Unlike LLCs, profits distributed to S-Corp owners after they’ve received their salaries are not subject to taxation. Luckily, LLCs that still make profits after distributing salaries can also apply for S-Corp taxation status to enjoy this benefit.

LLC vs. Corporation – Which one is better from the aspect of taxation?

Business taxes can be complex. It is best to consult an experienced accountant to determine which taxation option is best for your business.

LLC vs. Corporation: Similarities

Both business entities have some similarities as well. Here are some:

LLC vs. Corporation: Liability Protection

Both LLCs and Corporations offer personal liability protection, making your company a separate legal entity.

This means that if it suffers a loss, these business entities will protect your personal assets, such as your house, car, and personal bank accounts, from being used to pay off the debts. You will only lose the money that you have invested in your business.

This is unless, of course, there was negligence on your part individually or if you have any obligations that you personally guaranteed.

Both LLCs and Corporations must always remain compliant in filing reports, maintaining a Registered Agent, updating business information, etc. to keep their limited liability status.

Whether you form an LLC or a Corporation, you can benefit from the same type of liability protection.

Other Similarities

Other minor similarities between these two structures include,

  • Formation: Both legal entities are formed by filing paperwork with the Secretary of State.
  • Taxation: Both LLCs and Corporations can choose how they’re taxed. Corporations and LLCs can file for S-Corp status and enjoy tax benefits.

Types of Corporations: Explained

We’ve lightly mentioned S-Corps and C-Corps and some of their differences. Here’s a more in-depth look at each.

1. C-Corporation

This is the most common type of Corporation in the United States. Corporations have an unlimited number of shareholders and are subject to double taxation. This means that besides the company filing corporate taxes, shareholders also get taxed when they receive their dividends from the company’s earnings.

C-Corps are a separate legal entity from their owners, hence shareholders are protected from the company’s financial and legal liability. C-corps can trade their stocks publicly to raise capital which makes the structure suitable for large companies.

2. S-Corporation

S-Corps are slightly different from C-Corps in that they are not subject to double taxation. As mentioned earlier, an S-Corp’s business income, gains, deductions, and losses get reported by shareholders on their individual tax returns.

This means that the company doesn’t get taxed separately again as is the case with C-Corps. S-Corporation shareholders must be strictly US citizens, and the number of shareholders is also limited to 100.

3. B-Corporation

Also known as a certified benefit corporation, B-Corps are companies structured to benefit society, while making profits.

Obtaining a B-Corp status means getting a certification approving that your business is committed both legally and structurally to environmental sustainability, transparency, accountability, and social responsibility.

Both S-Corps and C-Corps can become B-Corps if they complete the required assessment, meet the legal stipulations, and get verified by B Lab.

4. Non-Profit Corporations

These are corporations built for purposes other than profit-making. For instance, religion, charity, education, social development, science, etc. Laws related to incorporating non-profit organizations vary from state to state.

Non-profit corporations have tax advantages as well. They can file for tax-exempt status for non-profit companies and avoid paying federal and state taxes. The most common form non-profit corporations fill out is the 501(C)(3).

5. Private Corporation

These are also known as closed Corporations and have only a few owners. They can take the form of incorporated partnerships, family corporations, or private companies.

With private corporations, shares are not traded publicly like in C-Corps. Owners, however, still retain their personal liability protection. The downside to this form of business is that the company’s ability to freely raise capital will be limited.

Frequently Asked Questions

1. Which is more expensive to set up, an LLC or a Corporation?

A. Corporations are generally more expensive to set up and run compared to LLCs. You’re likely to need more funding to get a corporation up and running.

2. Why choose an LLC over a corporation?

A. LLCs are easier and less expensive to form, have a less rigid structure, and allow for single-member ownership, unlike Corporations.

3. What is better for taxes LLC or S-Corp?

A. S-Corps have more tax benefits than LLCs. Unlike LLCs, company profits allocated to shareholders besides their salaries are not subject to taxation.

4. Is LLC better than C-Corp?

A. Whether an LLC is better than a C-Corp depends on your business needs. If you want to save on taxes and be more involved in your business’s management, LLCs are a better option. However, if you’re looking for exponential growth and unlimited access to funds, a Corporation is best.

5. Which business type has the best limited liability protection?

A. Corporations offer the strongest liability protection to their shareholders due to their more standardized and rigid structure.

Ready to Set Up Your Legal Business Entity in the United States?

LLC vs. Corporation – Which one should you choose?

Though this question is common to most business owners out there, its answer is unique for each of them.

The right legal entity for you totally depends on the way you want to establish and operate your business.

Whether you choose to form an LLC or a Corporation, GovDocFiling offers an LLC formation package and a Corporation formation package that can make it much easier for you. You can easily register your legal business entity with the state using one, simplified application for both federal and state filings.

Plus, you can benefit from expedited processing for no additional cost. Forming an LLC or a Corporation with us is a lot easier than doing it by yourself manually and much cheaper than having a lawyer or accountant do it for you.

Do you have more questions about which one to choose – LLC vs. Corporation? Take our entity survey or connect with me in the comments below.