LLC vs. Corporation: What is the Difference?

One offers flexibility and avoids double taxation. The other is rigid but necessary for venture capital. Here is the legal and tax breakdown to help you choose.

BMT Legal Research Team BMT Legal Research Team · 📅 Jan 2026 · ⏱️ 5 min read · LEGAL › BUSINESS
LLC
Pass-Through
TaxationFlexible
C-Corp
Double Tax
TaxationInvestors
S-Corp
Tax Status
Not an EntityOption

The Core Differences: LLC vs Inc.

The main difference lies in how they are owned and how they are taxed.

Factor LLC (Limited Liability Co.) C-Corp (Corporation)
Ownership Members (Unlimited) Shareholders (Stock)
Management Flexible (Member-Managed) Rigid (Board of Directors)
Taxation Single (Pass-Through) Double (Corp + Dividend)
Paperwork Low (Annual Report) High (Meeting Minutes)
What is “Double Taxation”?
C-Corps pay tax on profits first (21% Federal). Then, when they distribute profits to owners (Dividends), the owners pay tax again on their personal returns. LLCs avoid this first layer.
Administrative Burden
LLC (Simple) Low
Easy to maintain.
S-Corp (Hybrid) Medium
Requires payroll.
C-Corp (Complex) High
Strict bylaws & meetings.
GoalBest Fit
Lifestyle BizLLC
IPO / Big ExitC-Corp

Wait, What About an S-Corp?

This is the most common confusion. An S-Corp is not a business entity; it is a tax classification.

How It Works

You form an LLC first (for legal protection). Then, you file Form 2553 with the IRS to ask to be taxed as an S-Corp.

Why Do This? (The “Self-Employment Tax” Hack)

In a regular LLC, you pay 15.3% Self-Employment tax on all profits. In an S-Corp, you can pay yourself a “Reasonable Salary” (taxed at 15.3%) and take the rest as a “Distribution” (0% Self-Employment tax). This usually saves money if you earn over $80,000 profit.

Decision Guide: Which One For Me?

Scenario A: The Freelancer / Real Estate Investor

Choose an LLC. It provides the liability protection you need (separating personal assets from business lawsuits) without the headache of board meetings or double taxation.

Scenario B: The Startup Founder

Choose a C-Corp (Delaware C-Corp). Investors want “Preferred Stock,” which LLCs cannot issue. If you plan to raise money from Angels or VCs, they will force you to convert to a C-Corp anyway.

Frequently Asked Questions

Can I convert an LLC to a C-Corp later?
Yes. It is relatively easy to convert an LLC into a C-Corp if your business grows and you decide to take investment. Converting a C-Corp back to an LLC is much harder and creates tax penalties.
Does an LLC protect me personally?
Yes, but only if you keep finances separate. Do not mix personal groceries with business expenses, or you risk “piercing the corporate veil.”