Chauncey grew up on a farm in rural northern California. At 18 he ran away and saw the world with a backpack and a credit card, discovering that the true value of any point or mile is the experience it facilitates. He remains most at home on a tracto.
Chauncey Crail ContributorChauncey grew up on a farm in rural northern California. At 18 he ran away and saw the world with a backpack and a credit card, discovering that the true value of any point or mile is the experience it facilitates. He remains most at home on a tracto.
Written By Chauncey Crail ContributorChauncey grew up on a farm in rural northern California. At 18 he ran away and saw the world with a backpack and a credit card, discovering that the true value of any point or mile is the experience it facilitates. He remains most at home on a tracto.
Chauncey Crail ContributorChauncey grew up on a farm in rural northern California. At 18 he ran away and saw the world with a backpack and a credit card, discovering that the true value of any point or mile is the experience it facilitates. He remains most at home on a tracto.
ContributorCassie is a deputy editor collaborating with teams around the world while living in the beautiful hills of Kentucky. Focusing on bringing growth to small businesses, she is passionate about economic development and has held positions on the boards of.
Cassie is a deputy editor collaborating with teams around the world while living in the beautiful hills of Kentucky. Focusing on bringing growth to small businesses, she is passionate about economic development and has held positions on the boards of.
Written ByCassie is a deputy editor collaborating with teams around the world while living in the beautiful hills of Kentucky. Focusing on bringing growth to small businesses, she is passionate about economic development and has held positions on the boards of.
Cassie is a deputy editor collaborating with teams around the world while living in the beautiful hills of Kentucky. Focusing on bringing growth to small businesses, she is passionate about economic development and has held positions on the boards of.
Rob Watts Managing Editor, SMBWith over a decade of editorial experience, Rob Watts breaks down complex topics for small businesses that want to grow and succeed. His work has been featured in outlets such as Keypoint Intelligence, FitSmallBusiness and PCMag.
Rob Watts Managing Editor, SMBWith over a decade of editorial experience, Rob Watts breaks down complex topics for small businesses that want to grow and succeed. His work has been featured in outlets such as Keypoint Intelligence, FitSmallBusiness and PCMag.
Rob Watts Managing Editor, SMBWith over a decade of editorial experience, Rob Watts breaks down complex topics for small businesses that want to grow and succeed. His work has been featured in outlets such as Keypoint Intelligence, FitSmallBusiness and PCMag.
Rob Watts Managing Editor, SMBWith over a decade of editorial experience, Rob Watts breaks down complex topics for small businesses that want to grow and succeed. His work has been featured in outlets such as Keypoint Intelligence, FitSmallBusiness and PCMag.
| Managing Editor, SMB
Updated: Jun 14, 2024, 7:50pm
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The many types of business structures and the associated nomenclature can quickly become confusing. The differences among these categorical designations have important implications for taxes, liability and business operations, so understanding the nuances is important. Here we compare two of the most common business structures: the C-corporation or “C-corp” and the limited liability company or “LLC.”
A limited liability company balances the relative ease and flexibility of a partnership or sole proprietorship structure with the increased risk protection of a corporate structure. Like corporate shareholders, LLC owners (known as “members”) enjoy limited liability, meaning personal liability to the company includes only what members have invested and does not extend beyond it to cover corporate losses or debts.
The most important advantages and disadvantages of C-corps focus on the same principles as LLCs.
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While there’s no substitute for advice from licensed legal and tax professionals, an overview of the key similarities and differences between these business structures can help future owners ask the right questions about what type of business to form.
Although they are each quite popular, C-corps and LLCs are only two of several possible business designations. Here are some of the other options business owners might consider:
This tax designation can be elected by corporations—and some LLCs—that qualify in order to receive special treatment. Unlike C-corps, S-corps are exempt from a federal corporate income tax. Instead, much like revenue from LLCs, partnerships and sole proprietorships, revenue from S-corp dividends or gains is taxed only at the individual level. If S-corp shareholders can meet certain criteria, corporate losses are able to offset income from other sources when written off on personal income statements.
S-corps enjoy the same protection from liability offered by corporation status and maintain an independent “life” from owners. Like the LLC, this designation was created to make limited liability protections—which have historically been associated with big corporations—available to smaller businesses. For a corporation to qualify for S-corp status, it can’t exceed more than 100 shareholders, effectively ruling out corporations that want to go public. Ownership of an S-corp is restricted for the most part to individual U.S. citizens or permanent residents.
For an LLC, the main advantage of S-corp taxation is that it may save money on self-employment taxes. This is because owners of an S-corp can be company employees. They must pay themselves a reasonable salary, but additional company earnings are considered distributions, which are not subject to Medicare and Social Security taxes. Under the default LLC tax structure, owners are self-employed and must pay self-employment taxes on all company profit.
If a legal distinction between business and owner and the protections the legal separation of entity can afford are not important or desirable to a business founder, sole proprietorship can offer an appropriate alternative, provided specific circumstances exist. A sole proprietorship is the simplest structure for a one-owner business. It gives the owner few regulatory burdens and a high degree of control and flexibility, but without a distinct business entity, there’s no legal difference between the business’s assets, debts and other liabilities and those of the owner. Unlike a corporation, this means the owner is on the hook personally for any legal or financial failures of the business.
Partnerships are similar to sole proprietorships when it comes to liability or taxes. A partner in a general partnership, like a sole proprietor, reports a share of income, expenses, credits, profits and losses on personal tax returns and thus pays a personal income tax rate and assumes the business’s liability as personal liability. Like sole proprietors, partners must pay a self-employment tax where applicable on all gains without the benefit of separately categorized and possibly untaxed distributions. A limited partnership (LP) or limited liability partnership (LLP) may be an option depending on the industry and other specifics.
