Business Formation
How it protects you
Limited liability protection
This protects you and other partners from being personally responsible for the company’s debts and liabilities.
LLC
Corporation
Nonprofit
Sole prop
Flexible management structure
Corporations need a board of directors, annual meetings, record-keeping, and other requirements. While LLCs and sole proprietorships also have regulations, they are generally less strict.
State compliance requirements
Once formed, there are annual obligations to maintain your business’s good standing.
Taxed
LLCs and corporations offer various tax options.
Tax exempt
Nonprofits with 501(c)(3) status are exempt from federal income taxes.
Only with 501(c)(3) status
Flexibility to raise capital
Gain access to funding from banks, venture capital firms, and foundations.
Able to IPO
Only corporations can sell shares on the stock market.
C corp only
Frequently asked questions
Both LLCs and corporations protect owners from personal liability for business debts or obligations. However, they differ in ownership (LLCs can have one or more owners, while corporations have shareholders) and maintenance (corporations typically have stricter record-keeping and reporting requirements). While LLCs are easier to start and maintain, investors usually favor corporations.
The tax treatment differs between C and S corporations. C corporations face double taxation—taxes are paid on the business’s net income, and then shareholders are taxed on the profits they receive. In contrast, S corporations only tax shareholders on the profits they receive.
Personal liability protection: An LLC shields owners from personal responsibility for business debts or liabilities, whereas a sole proprietorship does not provide this protection.
LLCs, S corporations, and sole proprietorships are taxed only once on profits received. C corporations face double taxation—taxed at the corporate level, and shareholders are taxed on the income they receive. Nonprofits with 501(c)(3) status are exempt from federal income taxes.
LLCs, corporations, and nonprofits offer personal liability protection, while sole proprietorships and DBAs do not.