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Compare business structures
Find out whether an LLC, Corporation, or Nonprofit is best for your business
Which business structure is right for you?
Explore the advantages and disadvantages of these popular entity types.
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LLC
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S-corp
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C-corp
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Nonprofit
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Sole proprietorship
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Managing your business
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Limited liability
Incorporation can protect business owners and shareholders from personal financial responsibility for business debts or liability.
Members are protected
Shareholders are protected
Shareholders are protected
Directors are protected
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Sole proprietors are not protected
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Management flexibility
Some entities are more rigid than others when it comes to structure.
Variety of management structures
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Defined by state and federal law
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Defined by state and federal law
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Strict management laws
No management structure
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Favorable for financing
Depending on your goals for financing and stock distribution, certain entity types may be more suitable.
Gains credibility when applying for loans and grants
Can distribute one class of stock to up to 100 people
Can issue multiple classes of stock to unlimited shareholders
Gains credibility when applying for loans and grants
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Often more difficult to get loans and cannot issue stock
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Maintenance
Compliance requirements vary by state and entity type.
Easy to maintain and often most affordable
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Payroll requirements may create operational overhead
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Requires more complex accounting and potentially more reporting and fees
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Typically the most demanding due to tax-exempt status
No requirements or fees
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Longevity
Succession planning may be important to you. If so, you'll need a business structure that enables a smooth transition.
With the proper planning, LLCs can exist for generations
Existence is not tied to specific shareholders
Existence is not tied to specific shareholders
Existence is not tied to specific directors
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No longer exists when the owner quits or passes away
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Tax considerations
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Tax treatment
Your choice of entity can impact your tax rate and filing options.
Pass-through taxes: Most often, LLC members are taxed on their personal tax returns
Pass-through taxes: S-corp shareholders are taxed on their personal tax returns
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Double taxation: C-corp income is taxed at the corporate level first, then again at the personal level
Nonprofits can apply for tax-exempt status and donations are tax-deductible
Sole proprietorships are taxed only on their owner's tax return
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Registration fees
State filing fees are required for all legal entities. As a Rocket Lawyer member, you only pay state fees.
Fees are tax-deductible
Fees are tax-deductible
Fees are tax-deductible
Fees are tax-deductible
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No fees
FAQs about choosing a business structure
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DBAs vs. LLCs
What's right for your purposes will depend fully on your business and the operations conducted. Sole proprietors, freelancers, and partnerships may choose a DBA so that they can brand their name and promote themselves but not have to deal with the requirements of an LLC. There is also a much lower cost for doing business as a DBA vs. LLC.
If you want more than just a different name, you may want to consider an LLC. The key advantage of an LLC is that, as the name suggests, you are protected from personal liability. The business's debts will be collected from the assets belonging to the business; in most cases, your personal assets will be protected. An LLC is also often preferred when employees will be hired, as well as for expanding a business, selling a business, or seeking funding.
Before making your final decision between a DBA or LLC, it is best to speak with a lawyer about your specific business needs.
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LLC vs. S-corp
LLCs and S-corps are very similar from a tax perspective in that both have pass-through status. There are no retained earnings or dividends of the company. The profits or losses are taxable to each owner at the end of each fiscal year.
One major difference, and the reason why owners often choose S-corp status over LLC status, is the treatment of wages paid to owners. In an LLC, the entire profit or loss of the company is treated as ordinary income and subject to what is usually a higher tax rate on the owner's tax return if the owner is also an employee of the business. For an S-corp, the owner, if employed by the business, must only be paid a reasonable salary and the rest is subject to what is usually a lower capital gains rate. So, in many instances, the S-corp may result in a lower tax burden.
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S-corp vs. C-corp
There is no practical difference between an S-corp and a C-corp from the perspective of shielding a company's shareholders from liability. Both are simply corporations offering limited liability protection to their shareholders. The corporate governance procedures are also very similar. Both require bylaws and articles of incorporation, as well as annual shareholder meetings, for example. The major practical difference between them, besides certain qualifications a company must have to be treated as an S-corp, comes from the IRS's tax treatment of each. C-corps are subject to double taxation, while S-corps, much like limited liability companies, are pass-through entities.