LLC vs. Corporation

Comparison Between LLC and Corporation

The following table gives a side-by-side comparison of 3 most common forms of business organization: C-CorporationS-Corporation, and LLC (Limited Liability Company):

NOTE: LLC is the most flexible type of business entity thanks to the fact that LLC members can keep the company taxed as partnership (or disregarded entity if single-member LLC, both default forms of taxation), or instead elect it to be taxed as S-Corporation or even C-Corporation, if company owners’ taxation goals work best with these types of taxation.

Any corporation is taxed as C-Corporation by default, and can be elected to be taxed as S-Corporation, provided all shareholders are U.S. persons, etc (read here for a list of requisites for S-Corporation).

In the table below we compare LLC taxed as partnership (or disregarded entity) with corporations taxes as S-Corp and C-Corp respectively.

side-by-side comparison of 3 most common forms of business organization – THE ARK NPS

Comparing Business Entities: LLC vs. C-Corporation

Taxation Differences:

  • LLCs and C-Corporations undergo distinct tax treatment.
  • By default, an LLC operates as a pass-through tax entity, meaning its income is not taxed at the company level. However, a Multi-Member LLC must file a separate tax return, with income or loss “passed through” to individual members for reporting on their personal tax returns.
  • C-Corporations, conversely, function as separately taxable entities. They pay taxes on income before distributing dividends to shareholders. Dividend income, when distributed, is taxed as regular income to shareholders, without allowing the corporation a deduction for reasonable business expenses.


Structural Variances:

  • LLCs offer more structural flexibility compared to corporations. This allows for tailoring the LLC structure to suit unique business needs. The Operating Agreement of an LLC can be customized in numerous ways.
  • Corporations maintain a formal structure with mandatory officers and directors. In contrast, an LLC can be “member managed,” allowing for less formal operations. Reduced formality benefits small businesses by enabling a focus on revenue generation over administrative tasks.


Comparing Business Entities: LLC vs. S-Corporation

Income Allocation Distinctions:

  • While S-Corporations avoid double taxation, they lack the income allocation flexibility of LLCs. LLCs can have multiple membership interest classes, whereas S-Corporations are typically limited to a single class of stock.


Ownership Parameters:

  • LLC ownership is open to any number of individuals or entities, with no restrictions on subsidiaries. In contrast, S-Corporations have a 100-shareholder limit and cannot be owned by certain entities, including C-Corporations, trusts, LLCs, and non-resident aliens.


Self-Employment Tax Considerations:

  • S-Corporations offer a unique advantage in self-employment tax calculation. Owners must receive a salary, and their self-employment tax is based on this salary (excluding S-Corporations based in New York City). LLC owners, however, pay self-employment taxes based on all member distributions received.


Comparing Business Entities: C-Corporation vs. S-Corporation

Tax Treatment:

  • C-Corporations commence as standard entities and are subject to income tax on taxable earnings. They may elect S-Corporation status by filing federal form 2553 with the IRS.
  • S-Corporation income or loss is “passed-through” to shareholders and included in their personal tax returns. This structure avoids double taxation at the corporate level, contrasting with C-Corporations.


Income Allocation Differences:

  • S-Corporations, also known as Subchapter S-Corporations, are capped at 100 shareholders and cannot be owned by specific entities, such as C-Corporations or non-resident aliens.


This article does not aim to offer tax advice or guidance. None of the information presented on this website should be construed as legal or professional advice, and you should not solely depend on it to make legal determinations. When appropriate, it is advisable to seek the counsel of a qualified attorney for personalized advice tailored to your circumstances.

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