LLC vs Inc.: Everything You Need to Know
Choosing a business structure is like picking the right tool for a job—each has its strengths, quirks, and costs. For new entrepreneurs, the Limited Liability Company (LLC) and Corporation (Inc.) are two of the most popular options in the U.S. Both protect your personal assets, but they differ in taxes, management, ownership, and paperwork. This guide breaks it all down in plain English and a clear comparison table, so you can choose the structure that fits your business dreams. Let’s get started! Table of Contents What is an LLC? A Limited Liability Company (LLC) is like bubble-wrap for your personal assets: it shields them from business debts and lawsuits while remaining simple to run. LLC owners, called members, enjoy liability protection with fewer formalities than a corporation. To form an LLC, you file Articles of Organization with your state’s Secretary of State and pay a fee—usually between $50 and $500 (e.g., $50 in Colorado; $500 in Massachusetts). While an Operating Agreement isn’t required in every state, it’s a smart way to spell out ownership, profit splits, and decision-making rules. Fun Fact: LLCs existed in limited form starting in the late 1970s, but their popularity has exploded since the mid-1990s. In recent years, LLCs have become the most common structure chosen by small-business owners, reflecting their appeal to modern entrepreneurs. What is an Inc. (Corporation)? A corporation is a separate legal person with shareholders, a board, and more built-in formality. You file Articles of Incorporation (fees range from $90 in Delaware to $125 in New York), adopt bylaws, and hold annual shareholder and board meetings. Corporations come in two tax flavors: Fun Fact: Although corporations account for roughly 8% of all business tax returns, they generate about 60% of total U.S. business receipts, underscoring how most revenue still flows through corporate entities. Key Differences at a Glance Below we compare five critical areas: liability protection, taxation, management, ownership, and compliance. Comparison Table: LLC vs. Inc. Factor LLC Inc. (C Corp) Inc. (S Corp) Liability Members protected unless they commit fraud/negligence. Courts pierce veil very rarely. Shareholders protected. Veil-piercing more common than with LLCs. Same as C Corp. Taxation Pass-through (Schedule C/K-1); can elect C/S Corp status; Members pay self-employment tax on profits by default. Double taxation: 21% corporate tax + dividend tax (0%–20%). Pass-through; no self-employment tax on distributions; strict limits. Management Flexible: member-managed or manager-managed; no board or meetings required. Formal: board + officers; annual meetings and minutes mandatory. Same as C Corp. Ownership Unlimited members; no stock; transfers need approval. Unlimited shareholders; stock easy to sell; ideal for VC. Max 100 U.S. shareholders; one stock class. Compliance Minimal: annual report (fees $0–$500) and basic bookkeeping. High: adopt bylaws, hold annual meetings and minutes; several thousand dollars per year. High: same formalities as C Corp plus S-Corp eligibility upkeep; several thousand dollars per year. Best For Small businesses, freelancers, hands-on owners. Scalable startups, VC-funded ventures, public companies. Small firms wanting pass-through taxation with corporate structure. 1. Liability Shield Both LLCs and corporations protect personal assets, but the strength of that shield depends on following the rules. 2. Taxes Below is a condensed overview of how each structure is taxed, focusing on key points a newcomer needs to know. LLC (Default Pass-Through): LLC Electing S-Corp Status (Optional): C-Corp (Traditional Corporation): S-Corp (Standalone Election): Taxation Summary Table: Structure Entity Tax Rate Owner Tax Treatment Self-Employment Tax on Profits? Key Notes LLC (Default) 0% (pass-through) Owner reports on Schedule C or K-1 → Form 1040 Yes, 15.3% on net earnings Single-member uses Schedule C; multi-member files 1065 → K-1. QBI deduction up to 20%. LLC → S-Corp 0% (pass-through) Owner takes reasonable salary (W-2); rest is dividends Only on salary (FICA) Savings vs. 15.3% if distributions > salary; requires payroll setup. LLC → C-Corp 21% Profits taxed at 21% → dividends taxed again (0%–20%) — Potential double taxation; can retain earnings; access to corporate credits. C-Corp (Standalone) 21% Dividends taxed at 0%–20% on shareholders — Traditional corporate structure; double taxation. S-Corp (Standalone) 0% (pass-through) Owner salary (W-2) + distributions via K-1 Only on salary (FICA) Must meet eligibility (≤ 100 U.S. shareholders, one stock class). 3. Management Style 4. Ownership Flexibility 5. Compliance & Cost LLC C Corp S Corp Pros and Cons of LLC vs. Inc. LLC Pros LLC Cons Inc. Pros Inc. Cons Which Should You Choose? The choice between an LLC and Inc. depends on your business goals, size, and growth plans: Need Help Deciding? At Fynlo, we understand that choosing the right business structure can feel overwhelming. Our accounting software and expert team are here to simplify the process, from formation to tax planning. Whether you’re leaning toward an LLC or a corporation, we can help you navigate the paperwork, optimize your taxes, and stay compliant. Ready to get started? Schedule a call with Fynlo today to discuss your business goals and find the perfect structure for your success. Let’s build your dream business together! You may also like these articles:
