LLC vs. Corporation vs. Partnership: LLC, S-Corp, C-Corp, or Partnership

Are you starting a new venture in the US and feeling stuck on which structure to choose? Tough call; trust me, I know. Been there, done that. Deciding between an LLC, S-Corp, C-Corp, or Partnership isn’t just about picking a name or doing some window shopping—even if they sound fancy to some ears—it’s about finding the best fit for your goals, control, liability protection, and taxes.

The right business structure choice can shape everything from how much you pay in taxes to the amount of paperwork you’ll deal with—let me tell you, paperwork is no fun. So, how do you determine which one is best for you? Great question. In this detailed blog, I will discuss each and every type and help you decide which structure matches your business needs. Ready to find the perfect fit for your business dream? Let’s get started!

Main Types of Business Structure in the US

When starting a business—wherever you may—one of the first big decisions is choosing the right business structure, as this affects everything from taxes to liability. As today’s topic is based on our beloved Uncle Sam, here are the main types of business structures in the US:

• Sole Proprietorship: A sole proprietorship is the simplest to set up, owned by one person, and personally responsible for all debts.
  
  
• Partnership: A partnership is when two or more people come together to share ownership and responsibilities in a venture.
  
  
• Corporation: There are two types of corporation business structure in the US:
  • C Corporation: C corporations are separate legal entities providing strong liability protection but subject to double taxation.
    
    
  • S Corporation: S Corporation allows profits and losses to pass through to the owners’ personal tax returns.
    
    
• Limited Liability Company (LLC): An LLC offers liability protection like a corporation with the flexibility of a partnership.

Choosing the right one sets the foundation for how your business will operate, be taxed, and protect its owners.

What Is an LLC and How Does It Work?

An LLC, or Limited Liability Company, is a business structure in the U.S. that mixes features of both partnerships and corporations. It’s a flexible option that offers personal liability protection—meaning if your LLC runs into debt or legal trouble, your personal assets, like your home and savings, are generally safe.

Think of an LLC as a hybrid that gives you the best of both worlds: the limited liability of a corporation and the tax flexibility of a partnership. Profits and losses “pass through” directly to the owners’ personal tax returns, so there’s no need to worry about corporate taxes. However, keep in mind that LLC members are seen as self-employed, so you’ll need to pay self-employment taxes for Medicare and Social Security.

There are two main and popular types of LLCs in the US; they are:

1. Single Member LLC, also known as Disregarded Entity.
2. Multi-member LLC.

Limited Liability Company Examples

An LLC is a popular choice for many businesses, from small startups to large corporations. Some well-known companies have chosen the LLC structure for its flexibility and liability protection. Here are a few notable and real-life examples for you:

• Google LLC: One of the biggest tech giants in the world.
• Blockbuster LLC: A name synonymous with the golden era of video rentals.
• IBM Credit LLC: The financing arm of IBM, showing how even big corporations use LLCs for specific business units.
• Hertz Vehicles LLC: A major player in the car rental industry.

Limited Liability Company Advantages

Starting an LLC comes with a lot of perks. Let’s talk about all those LLC advantages shortly for your better understanding:

• Be the Sole Owner of Your Business: Most states allow single-member LLCs, meaning you can be the sole owner and make all business decisions without needing approval from partners or a board of directors. This gives you the freedom to manage and operate your business like a sole proprietor but without the liability issues. If there are multiple owners, you can create an operating agreement to define roles and obligations, structuring your business to best suit your needs.
  
  
• Business Expansion: An LLC is a good choice when starting a business, especially if you plan to expand. It’s easy to grow by selling or licensing part of your interest in the company.
  
  
• Fewer Formalities: Registering an LLC requires filing articles of organization and paying a state fee, usually to the secretary of state. This process is straightforward, typically involving basic information like the LLC’s name, primary office location, member identities, and the business’s duration. The LLC’s simple setup is perfect for small businesses looking to avoid complex formalities while enjoying management flexibility and tax benefits.
  
  
• LLC Limits Your Liability: An LLC is a separate legal entity from its owners, limiting their personal liability for the business’s debts and legal issues, similar to a corporation’s shareholders. The owner’s personal assets are generally protected, except for their investment in the LLC.
  
  
• Flexibility About Taxation: LLCs can choose different tax treatments, allowing owners to avoid double taxation. With an LLC, income is taxed only at the individual member level, not at the corporate level, which simplifies tax obligations.
  
  
• Legal Protection: As a separate legal entity, an LLC protects its members from being personally liable for the company’s operations and debts. For example, if an employee engages in illegal activities, the LLC’s assets could be targeted, but the owners’ personal assets would typically be safe—unless an owner was aware of and allowed the illegal activities to continue.

Limited Liability Company Disadvantages

While LLCs offer several advantages, they’re not without their drawbacks. So, for your sake, let’s explore the disadvantages also:

• Limited Liability Has Its Limits: Your personal assets are protected, but there are exceptions. If you mix personal and business finances or act dishonestly, you could lose that protection under the “piercing the corporate veil” rule.
  
  
• Self-Employment Taxes: LLC members are seen as self-employed for tax purposes, meaning they must pay self-employment taxes, including Social Security and Medicare. This can be higher than the corporate tax rate.
  
  
• Consequences of Member Turnover: If a member leaves, dies, or files for bankruptcy, many states require the LLC to dissolve, which means starting all over again.
  
  
• Difficult to Transfer Ownership: Unlike corporations, LLCs can find it hard to attract investors or transfer ownership, making it tricky if you’re looking to bring in new partners or investors.
  
  
• Potential Confusion About Roles: LLCs don’t have clearly defined roles like corporations do, which can lead to confusion about who’s in charge of what. An operating agreement can help clarify this but isn’t always required.

Satisfied yet? No? Learn more about LLC’s advantages and disadvantages from our comprehensive blog.

What Is a Corporation?

A corporation is a legal entity created by individuals or shareholders to conduct business and make a profit. Think of it as its own person—able to enter into contracts, own assets, sue or be sued, pay taxes, and borrow money. Forming a corporation involves a process called incorporation, where you file legal documents outlining the business’s purpose, name, location, and stock details.

There are a few types of corporations in the US corporate world. Among those, let’s talk about the two most popular and operational two:

1. S Corporation.
2. C Corporation.

What Is S Corporation?

An S corporation, or S corp, is a special type of corporation that helps avoid the double taxation that C corporations often face. With an S corp, profits (and some losses) pass directly to the owners’ personal income, bypassing corporate tax rates. This means you only pay taxes once on your personal return.

However, not all states handle S corps the same way. Some tax S corp profits above a certain limit, while others might not recognize S corp status at all, treating it as a regular C corp instead. To become an S corp, you need to file with the IRS separately from your state registration. It’s a great option for businesses that qualify and want to avoid double taxation.

S Corporation Examples

S Corporations can be a smart choice for businesses looking to benefit from limited liability and pass-through taxation. Take The Hershey Company, the famous chocolate maker, and Subway, the global fast-food chain. Both of these well-known brands have thrived using the S corp model.

Why? Because S corps allow profits and losses to pass directly to shareholders, avoiding that dreaded double taxation. Plus, there’s flexibility in how profits are distributed and the bonus of avoiding self-employment taxes on those distributions. These examples show how diverse businesses—from candy to sandwiches—can benefit from the S corp structure and achieve success.

S Corporation Advantages

S Corporations offer several benefits that can be great for business owners:

• Pass-Through Taxation: No double taxation here—profits and losses go straight to shareholders’ personal tax returns.
  
  
• Tax Savings: Shareholders can draw a salary and receive dividends, which aren’t hit with self-employment taxes, reducing overall tax bills.
  
  
• Liability Protection: Like a C Corp, an S Corp protects your personal assets from business debts and lawsuits.
  
  
• Easy Ownership Changes: You can transfer shares without triggering major tax issues, making it easier to sell or hand over the business.
  
  
• Simpler Accounting: Most S Corps can use cash accounting, which is easier to manage if you don’t deal with inventory.

S Corporation Disadvantages

While S corporations offer some great benefits, they also have a few drawbacks:

• Formation and Ongoing Costs: Setting up an S Corp requires filing Articles of Incorporation and paying state fees, plus ongoing costs like annual report fees or franchise taxes that sole proprietorships and partnerships don’t have to deal with. Additionally, S Corps have to report Beneficial Ownership Information (BOI) unless they qualify for an exemption, adding another layer of compliance.
  
  
• Strict Shareholder Rules: S Corps can’t have more than 100 shareholders, and all must be U.S. citizens or residents. Foreign investors and other companies can’t own shares, limiting growth options.
  
  
• Closer IRS Scrutiny: The IRS often scrutinizes S Corps to ensure they aren’t avoiding taxes by paying low salaries and high dividends, which can lead to reclassification and penalties.

Note: Nonresidents are not allowed to own stock in, or register, an S corporation.

What Is a C Corp Structure?

A C corporation is a type of business entity that’s legally separate from its owners, giving it a life of its own. It’s ideal for larger businesses, especially those looking to grow through the sale of stock. That’s why many big companies and public firms are structured as C Corps—they can raise unlimited capital and attract investors.

One key thing to know about the C Corps is double taxation. This means the company pays taxes on its profits at the corporate tax rate (currently 21%), and then shareholders also pay taxes on dividends they receive. However, this setup provides the strongest personal liability protection for its owners. If a shareholder decides to leave or sell their shares, the company continues on, unaffected. While there’s more paperwork and regulations, a C Corp offers stability and strong growth potential for businesses looking to expand.

C Corporation Examples

C Corporations are a popular choice for many big companies. Apple, Google (Alphabet Inc.), Microsoft, and Walmart are all C Corporations. This structure lets them raise money by selling stock, grow quickly, and protect their owners’ personal assets from business debts.

Companies like General Motors and Johnson & Johnson also benefit from being C Corporations, which makes it easier to manage complex operations and handle mergers and acquisitions. These examples show how C corporations help businesses expand and safeguard their shareholders.

C Corporation Advantages

There are plenty of reasons why a C corporation might be the right choice for your business:

• Limited Liability Protection: With a C corporation, your personal assets are safe if the business runs into financial or legal trouble. You’re only liable for what you invest, unlike in sole proprietorships or partnerships.
  
  
• Attracting Investors: C corporations can have unlimited shareholders and different classes of stock, making them a popular choice for investors and venture capitalists looking to put money into growing businesses.
  
  
• Perpetual Existence: A C corporation exists independently of its owners. This means the business continues even if the ownership changes, offering long-term stability.
  
  
• Free Transferability of Shares: Shares in a C corp can be easily transferred, allowing flexibility for investors to enter or exit the business as needed.
  
  
• No Direct Management by Shareholders: Shareholders aren’t involved in daily operations but have a say in major decisions, helping to keep the company focused on long-term success.

C Corporation Disadvantages

While C Corporations come with some perks, they also have a few downsides to keep in mind:

• Double Taxation: One of the biggest drawbacks of a C Corp is double taxation. First, the company pays taxes on its profits. Then, when those profits are distributed as dividends, shareholders have to pay taxes on that income too. This can lead to a higher overall tax bill for the business and its owners.
  
  
• Increased Paperwork: Running a C Corp means dealing with a lot more paperwork and stricter reporting requirements. You’ll need to hold regular shareholder and director meetings, keep detailed minutes, and adhere to formal record-keeping rules.
  
  
• Complexity: C Corporations are generally more complex to manage than LLCs. There are more formalities involved in how the business is run, which can be a hassle for those looking for a more straightforward business structure.

S Corp Vs. C Corp Tax Advantages

As I mentioned before, you can see that both the S corporations and C corporations have their own advantages and disadvantages—whether it’s about tax or any other aspect. For now, let’s have a brief look at the tax aspects of these two corporations:

• S Corp: The main advantage is avoiding double taxation. Profits pass directly to shareholders and are only taxed once on their personal returns. Plus, S corporations can save on self-employment taxes by paying some income as dividends.
  
  
• C Corp: Although C corporations are subject to double taxation, they can deduct more business expenses and benefits. This can reduce corporate taxes and allow for more flexibility in retaining earnings for growth.

Partnership

A partnership is a simple business structure where two or more people share ownership, profits, and losses. Each partner contributes something valuable, like money, skills, or property, and agrees to split the business outcomes.

There are two main types: Limited Partnerships (LPs), where some partners have limited liability, and Limited Liability Partnerships (LLPs), which offer liability protection to all partners. Partnerships don’t pay income taxes directly. Instead, they file an annual information return, and profits or losses are passed through to each partner’s personal tax return. This setup allows partners to share the risks and rewards of running a business without the complexity of forming a corporation.

Note: An LLP, or Limited Liability Partnership, is a more popular and founded business structure in the UK than in the US.

Partnership Business Advantages And Disadvantages

Advantages

Choosing a partnership as your business structure has several perks that make it appealing:

• Broader Expertise and Knowledge: Teaming up with a partner means combining your skills and experience. For example, if you’re great with ideas but not so much with sales, a partner with sales skills can fill that gap.
  
  
• Infusion of Capital: A partner can bring in additional cash and strategic connections, which might help attract investors and raise more capital for your business.
  
  
• Cost Savings: Sharing expenses and investments with a partner can ease the financial burden, making it easier to grow and compete.
  
  
• Work-Life Balance: With a partner, you can share responsibilities, giving you more flexibility to take time off and maintain a healthier work-life balance.
  
  
• Fresh Perspectives and Support: A partner can offer new insights, moral support, and fresh ideas, helping you spot blind spots and tackle challenges more effectively.

Disadvantages

While a partnership can be a great way to start a business, there are some downsides to consider—and you really should consider these points before diving into a partnership to ensure it’s the right fit for you. Have a brief look:

• Shared Liability: In a partnership, you share not just the profits but also the risks. If your partner racks up debt or makes a bad decision, you’re on the hook for it too, which can put your personal assets at risk.
  
  
• Loss of Autonomy: You can’t make decisions on your own. Every major decision has to be run by your partner, which can slow things down and cause frustration, especially if you’re used to being in control.
  
  
• Potential Conflicts: Disagreements are inevitable in partnership businesses. Whether it’s about how much effort each person is putting in or different visions for the business, conflicts can strain the partnership.
  
  
• Exit Strategy Complications: Leaving a partnership isn’t simple. If one partner wants out, it can be a hassle to find a solution that works for everyone.
  
  
• Lack of Stability: Changes in a partner’s situation, like moving away or wanting to sell their share, can create instability and uncertainty for the business.
  
  
• LLC vs. Corporation vs. Partnership: Differences Between LLC, S-Corp, C-Corp, and Partnership

LLC vs. Corporation vs. Partnership: Differences Between LLC, S-Corp, C-Corp, and Partnership

Okay, enough chit-chatting. Let’s focus on the most important point of this blog: What are the differences between LLC, S corp, C corp, and Partnership? Let’s briefly talk about that so you can comprehend the whole concept better.

Ownership and Control

• LLC: Flexible ownership—you can have one owner (single-member) or multiple owners (multi-member). You have full control over your business decisions without needing a board of directors.
  
  
• S-Corp: Limited to 100 shareholders who must be U.S. citizens or residents. Control is shared among the shareholders and governed by a board of directors.
  
  
• C-Corp: Unlimited number of shareholders and multiple classes of stock, making it ideal for attracting investors. A board of directors and officers oversee the operations.
  
  
• Partnership: Owned by two or more partners who share control based on a partnership agreement. Each partner’s say in decisions depends on their share and the terms of the agreement.

Liability Protection

• LLC: Offers personal liability protection, meaning your personal assets are generally safe if the business faces lawsuits or debts.
  
  
• S-Corp: Provides the same personal liability protection as a C-Corp, shielding owners’ personal assets from business liabilities.
  
  
• C-Corp: Strong liability protection. Owners’ personal assets are protected from any legal action or debt related to the business.
  
  
• Partnership: Liability is shared among partners, and in a general partnership, personal assets can be at risk for business debts and legal issues. Limited partnerships offer some liability protection to their limited partners.

Liability Protection

• LLC: Offers personal liability protection, meaning your personal assets are generally safe if the business faces lawsuits or debts.
  
  
• S-Corp: Provides the same personal liability protection as a C-Corp, shielding owners’ personal assets from business liabilities.
  
  
• C-Corp: Strong liability protection. Owners’ personal assets are protected from any legal action or debt related to the business.
  
  
• Partnership: Liability is shared among partners, and in a general partnership, personal assets can be at risk for business debts and legal issues. Limited partnerships offer some liability protection to their limited partners.

Taxation

• LLC: Pass-through taxation, meaning profits and losses go directly to owners’ personal tax returns, avoiding double taxation. However, owners pay self-employment taxes.
  
  
• S-Corp: Also has pass-through taxation, avoiding double taxation. However, owners who work in the business must be paid a reasonable salary, which is subject to payroll taxes.
  
  
• C-Corp: Faces double taxation—once on corporate profits and again on dividends to shareholders. However, C-Corps can deduct many business expenses, potentially lowering the overall tax burden.
  
  
• Partnership: Pass-through taxation, where profits and losses are reported on partners’ personal tax returns. Each partner pays taxes based on their percentage of the profits.

Formalities and Paperwork

• LLC: Less paperwork and fewer formalities. Generally, you only need to file articles of organization and maintain a basic operating agreement.
  
  
• S-Corp: Requires more paperwork than an LLC, including filing articles of incorporation and maintaining a board of directors, annual meetings, and corporate minutes.
  
  
• C-Corp: Requires the most formalities, including a board of directors, shareholder meetings, corporate minutes, and annual reports. In addition, there are more regulations and compliance requirements.
  
  
• Partnership: Minimal formalities. Usually, just a partnership agreement is needed. However, general partnerships have less protection and more potential liability than LLCs or corporations.

Flexibility in Management

• LLC: Highly flexible. Owners can choose to manage the LLC themselves or hire managers, and there’s no need for a board of directors or formal management structure.
  
  
• S-Corp: Less flexible due to strict rules about ownership and structure. Must have a board of directors and follow corporate formalities.
  
  
• C-Corp: Least flexible in terms of management structure. Requires a board of directors, officers, and strict adherence to corporate formalities.
  
  
• Partnership: Flexible management as partners decide how to run the business. However, decisions must be agreed upon by all partners, which can sometimes slow down the process.

Which Is Best for My Business, LLC, S-corp, C-corp, or Partnership?

Choosing the right structure for your business depends on your specific needs and future plans. There are also some remarkable and mention-worthy factors like taxation, expansion, investment, share issuance, operational policies, etc. Now, let’s take a look at the quick rundown here:

• LLCs offer flexibility and protect personal assets with fewer formalities, making them perfect for small to medium-sized businesses. They provide pass-through taxation, which means profits and losses are reported on your personal tax return.
  
  
• S-Corps can be a good choice if you meet the IRS’s criteria. They offer tax benefits by avoiding double taxation, as profits pass through to the owners’ personal income.
  
  
• C-Corps are best for businesses looking to attract investors or raise capital, as they offer the most protection against personal liability. However, be prepared for double taxation—once on corporate earnings and again on dividends.
  
  
• Partnerships are great for businesses with multiple owners who want simple setup and management, with profits passing directly to personal tax returns.

Each option has its own benefits, so think about your business goals, growth plans, and financial needs when deciding. And don’t forget to consult with an expert to have a more clear picture.

Where Does Business Globalizer Fit in the Scenario?

At Business Globalizer, we help you choose the best business structure—whether it’s an LLC, S-Corp, C-Corp, or Partnership. We provide services like company formation (US, UK, or UAE), tax filing, and ongoing compliance—for both residents and non-residents—to make sure you’re set up for success. Our team also assists with EIN and ITIN applications, operating agreements, and registered agent services, so you have everything you need to get started.

Whether you’re just starting out or looking to expand, we’re here to guide you through every step, making the whole process as smooth as possible. Let us handle the details while you focus solely on growing your business.

FAQs

Q1: What Is a C Corporation nonprofit?

Answer: A type of organization that operates separately from its owners and is not for profit. It uses the C Corporation structure but focuses on charitable, educational, or similar missions. Profits are reinvested back into the organization’s mission rather than distributed to shareholders. To be tax-exempt, it must apply to the IRS.

Q2: Which Type of Business Owner Is Best Suited for a Corporation?

Answer: If you’re looking to grow your business by hiring employees and bringing in outside investors, a corporation might be the best fit. Corporations make it easier to transfer ownership, and investors often prefer their clear structure. If you’re also committed to making a positive social or environmental impact, consider forming a benefit corporation (B-corp), if that’s an option in your state.

Q3: How to set up a corporation?

Answer: To set up a corporation, choose a name, appoint directors, and file Articles of Incorporation with your state. Create corporate bylaws, hold an initial board meeting to adopt them, and apply for an EIN from the IRS. You’ll also need to issue stock certificates and obtain any necessary licenses.

Q4: Is setting up an LLC expensive?

Answer: The cost of setting up an LLC varies based on a few factors, such as the state you’re in, the services you choose, and any extras like an operating agreement. To get a clearer idea of the potential costs, take a look at our detailed guide on LLC fees and compliance expenses.

Q5: How to start a partnership business?

Answer: To start a partnership, pick your partners, and draft a partnership agreement that covers roles, responsibilities, and profit-sharing. Register your business name, get the required licenses, and open a separate bank account to manage the business finances.

Q6: What are the legal requirements for starting a partnership business?

Answer: Legally, you need to register your business name, obtain any required licenses or permits, and create a partnership agreement to outline roles and profit sharing. Some local or industry-specific requirements may also apply.

Q7: Which business entity provides the best tax advantages?

Answer: It really depends on your specific situation—your type of business, income level, goals, and how your business is set up. There isn’t a one-size-fits-all answer here. The best thing to do is consult with a knowledgeable small business accountant who can help you make the right choice for your needs.

Final Words

Well, we are at the finishing line of the blog. What a journey, right? I hope I have successfully quenched your thirst for learning today’s topic: LLC vs. Corporation vs. Partnership.

Choosing the right business structure—whether it’s an LLC, S-Corp, C-Corp, or Partnership—is a big decision that can impact everything from taxes to personal liability. Think about your goals, your growth plans, and how much flexibility you need. Each option has its own pros and cons, so take the time to understand what suits your business best. And remember, you don’t have to figure it out alone. Reach out to experts if you need help making the right choice. Here’s to building a strong foundation for your business dream!