LLC vs. Corporation: which is right for you?

What they have in common

Both an LLC (Limited Liability Company) and a corporation are separate legal entities from their owners. That separation is the whole point: if the business is sued or can't pay its debts, your personal assets — your home, your savings — are generally protected, as long as you keep business and personal finances separate and follow the rules.

The LLC — flexible and simple

• Taxed by default as “pass-through”: profits flow to your personal return and are taxed once, avoiding the corporate double-tax.
• Fewer formalities — no required board of directors, annual meetings, or minutes.
• Flexible ownership and profit-sharing, defined in an Operating Agreement.
• Best for: freelancers, consultants, real-estate holdings, small teams, and most new small businesses.

The Corporation — structured for growth

• A C-corporation is taxed as its own entity; profits distributed as dividends can be taxed a second time on your personal return (“double taxation”).
• Can issue stock — the standard path if you plan to raise venture capital or bring on investors.
• Requires more formality: bylaws, a board of directors, officer roles, annual meetings, and minutes.
• An S-corporation is not a separate entity type but a tax election an LLC or corporation can make to reduce self-employment tax in the right circumstances.
• Best for: startups raising outside investment, companies planning to issue equity, or businesses that benefit from an S-corp tax election.

A California note

In California, most LLCs and corporations owe an $800 minimum annual franchise tax to the Franchise Tax Board, and LLCs above certain revenue levels owe an additional fee. Both entity types must also keep a current Statement of Information on file with the Secretary of State. We factor these ongoing costs into the recommendation so there are no surprises.

How to decide

If you want simplicity, pass-through taxation, and low overhead, an LLC is usually the answer. If you're raising investment or issuing stock, a corporation is typically the right structure. Many businesses also start as an LLC and elect S-corp taxation once profits reach a level where it saves on self-employment tax. The right answer depends on your revenue, your growth plans, and your tax picture — which is exactly what we work through in a consultation.