Choosing the right business entity is one of the most important legal and financial decisions a small business owner will make. The most common options in the United States are LLCs, S-Corps, and C-Corps, and each offers different advantages when it comes to liability protection, taxes, administrative requirements, and long-term flexibility. There is no one-size-fits-all answer, the best structure depends on your business goals and circumstances.
An LLC (Limited Liability Company) is often popular with small and service-based businesses because it provides personal liability protection while remaining relatively simple to manage. LLCs offer flexible ownership and management structures and are generally taxed as pass-through entities, meaning profits and losses pass through to the owner’s personal tax return. This simplicity makes LLCs a common choice for single-owned businesses and small teams.
An S-Corporation is not actually a type of entity, it is a tax election made with the IRS. Both LLCs and corporations can elect S-Corp tax status if they meet eligibility requirements. S-Corps can provide tax savings by allowing owners to take a reasonable salary and receive additional profits as distributions, potentially reducing self-employment taxes. However, S-Corps come with stricter payroll, reporting, and ownership rules, which may not be suitable for every business.
A C-Corporation is typically used by businesses planning to raise outside investment, issue multiple classes of stock, or scale rapidly. C-Corps are taxed separately from their owners and are subject to corporate tax rates, which can lead to “double taxation” if profits are distributed as dividends. Despite this, C-Corps offer the most flexibility for growth, investors, and long-term expansion. Regardless of the structure you choose, common mistakes, such as commingling funds, failing to maintain proper documents, or not using separate bank accounts, can undermine liability protection. Working with a business attorney helps ensure your entity is set up and maintained correctly from day one.
