LLC vs Corporation (C-Corp)
Compare an LLC and a C corporation on taxes, liability, ownership, paperwork, and funding, with guidance on which fits your business.
Both an LLC and a C corporation are separate legal entities that shield owners from most business debts. They differ in how they are taxed, how they are owned, how much formality they demand, and how well they fit outside investment. This comparison sets them side by side so you can match the structure to your plans.
At a glance
| LLC | C corporation | |
|---|---|---|
| Liability protection | Yes, for members | Yes, for shareholders |
| Default federal tax | Pass-through: profit taxed once on owners' returns | Corporate tax on profit, then tax again on dividends |
| Ownership | Members, with flexible ownership and profit splits | Shareholders holding stock, with share classes |
| Management | Flexible: members or managers | Board of directors and officers |
| Formalities | Light: operating agreement, annual report | Heavier: bylaws, board and shareholder meetings, minutes |
| Raising venture capital | Difficult | Standard structure investors expect |
| Stock options for employees | Complicated | Straightforward |
Taxes
An LLC is by default a pass-through entity. There is no entity-level federal income tax, and each member reports their share of profit on a personal return. A C corporation pays federal tax at the corporate rate (a flat 21 percent under current law) on its profit, and shareholders pay tax again when profit is paid out as dividends. This double taxation is the main cost of a C corporation for a small business. On the other side, corporate structure lets founders pay themselves salaries, use fringe benefits, and retain earnings in the company at the corporate rate.
Ownership and funding
LLC ownership is flexible, but investors are usually unfamiliar with LLC interests and often want a corporation with preferred stock. If you plan to raise venture capital, offer stock options, or go public, a C corporation is normally the right choice, and many companies incorporate in Delaware for that reason. Businesses that stay owner-funded or family-held rarely need it.
Administration and cost
An LLC requires an operating agreement and periodic state reports. A corporation adds bylaws, a board, officer roles, shareholder and director meetings, and minutes. Filing fees are similar in many states, but ongoing compliance and professional fees are usually higher for corporations.
Which fits you
- Choose an LLC if you are a solo founder, freelancer, small partnership, or real estate owner who wants liability protection with light paperwork.
- Choose a C corporation if you plan to raise venture capital, issue stock options, or eventually sell the company through an acquisition or IPO.
- If you start as an LLC and later need to raise venture funding, you can convert, but plan for the tax and legal cost of that change.
See the full framework in our entity selection guide, or compare filing costs by state in the state fee table.
Two scenarios
- Bootstrapped consulting firm: two owners, no outside investors, profits taken as income. An LLC keeps taxes to a single layer and keeps administration light.
- Seed-stage software company: plans to sell preferred stock to investors and give options to employees. A C corporation is the format investors' lawyers expect, and it avoids a costly conversion at the first financing round.
If both descriptions fit different parts of your plans, start with the structure that fits the next 12 to 18 months, and budget for converting if plans change.
Disclaimer: Legal information, not legal advice. For advice about your specific situation, consult a licensed attorney or CPA in your state.