What is the difference between an LLC and an S-Corp?

An LLC is a legal entity type; an S-Corp is a tax election. An LLC gives you liability protection and pass-through taxation by default. Electing S-Corp status (via IRS Form 2553) on an LLC or C-Corp changes how the IRS taxes the profits: owners take a reasonable W-2 salary and receive the rest as distributions that avoid self-employment tax. Most owners electing S-Corp keep their underlying entity as an LLC for simplicity.

When should I choose an LLC over an S-Corp election?

Stick with a plain LLC when profits are modest (roughly under $50K–$80K/year), when you want the simplest possible admin, or when you plan to run losses through to your personal return in the early years. Ownership by non-US persons, most types of trusts, or corporate entities also forces you to stay LLC-only — S-Corps have strict shareholder rules.

When does S-Corp taxation start saving real money?

Once net profit reliably exceeds a reasonable owner salary, S-Corp treatment saves 15.3% self-employment tax on every dollar of profit above that salary. The rule of thumb: if you're netting $75K+ per year and the business is stable, run the numbers on an S-Corp election. The savings usually offset payroll admin costs starting around $80K–$100K in net profit.

When should I choose a C-Corp instead?

Pick a C-Corp when you plan to raise venture capital (VCs won't invest in LLCs or S-Corps), when you want to issue multiple classes of stock, when you have foreign investors or corporate investors, or when you want to qualify for Section 1202 Qualified Small Business Stock (QSBS) — which can exclude up to $10M of gain from federal tax on a sale.

What is a PLLC or PC and when do I need one?

A Professional Limited Liability Company (PLLC) or Professional Corporation (PC) is required in most states when the business provides licensed professional services — medical, legal, accounting, architecture, engineering. Regular LLCs and corporations aren't permitted to hold professional licenses. The entity works like its non-professional counterpart, but ownership is restricted to licensed practitioners.

Should I form my LLC in Delaware, Wyoming, or my home state?

For most operating small businesses, form in your home state — the state where you'll physically do business. Delaware and Wyoming are worth the extra cost only in specific cases: Delaware for venture-backed C-Corps (courts, well-understood law), Wyoming for asset-holding or privacy-focused entities. If you form out-of-state and operate at home, you'll pay to register as a foreign entity in both states.

Can I change my entity type later?

Yes, but it's easier before you have revenue, employees, contracts, and payroll accounts. LLCs can elect S-Corp taxation at any time (Form 2553) with no legal restructuring. Moving from an LLC to a C-Corp usually means a statutory conversion or entity restructuring, and can trigger tax consequences. If you're targeting VC funding, form as a Delaware C-Corp from the start.

What entity should I use to buy a business with an SBA loan?

Most SBA acquisition loans are closed into a newly formed LLC owned by the buyer, with S-Corp tax election filed after closing when profits justify it. This gives liability protection, keeps ownership simple, and preserves flexibility. C-Corps are rare for SBA acquisitions because you lose pass-through taxation. Use the tool above for a recommendation tailored to your specific deal.

LLC vs S-Corp vs C-Corp: Entity Selection Tool

Answer a few plain-English questions and we'll suggest the right business structure — and the best state to form it in.

About your business

The basics

Goals & growth

What you're trying to achieve

Owners

Who owns the business

Location & future

Where you'll operate and long-term plans

About your business

The basics

What kind of business is this?

How does the business make money?

Is your industry regulated or licensed?

What revenue do you expect in the first 1–2 years?

Step 1 of 4

Disclaimer: This tool provides educational information and a preliminary planning framework. It is not tax, legal, or accounting advice. Consult a qualified CPA or attorney before acting.

How to choose between LLC, S-Corp, C-Corp, and PC/PLLC

Your business entity decision drives everything downstream — taxes, liability protection, how you raise capital, and how much you keep when you sell. The right structure depends on how you'll run the business, not on what's popular online.

The four entity types at a glance

Entity	Best for	Tax treatment
LLC	Most operating small businesses; anyone starting out.	Pass-through by default.
LLC + S-Corp election	Profitable businesses netting more than a reasonable owner salary.	Owner takes W-2 salary; profits above salary avoid SE tax.
C-Corp	VC-funded startups, businesses with foreign investors, QSBS candidates.	Corporate-level tax; qualified stock can be tax-free on sale.
PLLC / PC	Licensed professionals — medical, legal, accounting, architecture.	Same as LLC / C-Corp; ownership restricted to licensed practitioners.

The S-Corp break-even

The S-Corp election saves you 15.3% self-employment tax on profits above your reasonable salary. It costs you payroll admin, extra bookkeeping, and a separate tax return. Most owners break even between $75K and $100K in annual net profit, and the savings compound from there. Below that number, a plain LLC keeps more money in your pocket.

Where to form: state selection

The internet loves recommending Delaware and Wyoming. For most operating businesses, that's expensive advice. Every state where you actually do business will require you to register as a "foreign entity" — meaning if you form in Delaware and operate in Texas, you pay both states.

Home state — the right choice for the vast majority of operating small businesses.
Delaware — worth it only for C-Corps raising venture capital.
Wyoming — worth it only for asset-holding entities or when owner privacy is a real priority.
Nevada — mostly marketing hype for operating businesses; the tax and privacy benefits are overstated once you register as a foreign entity in your home state.

Buying a business? Use an LLC.

SBA acquisition loans are almost always closed into a newly formed LLC owned by the buyer. Once the business is stable and profits justify it, elect S-Corp taxation to lower your self-employment tax. Before you close, run your target through the DSCR Calculator to confirm it will qualify for SBA financing, then talk to our team through our free SBA loan consultation.

Educational tool, not legal advice

This tool provides a general recommendation based on the profile you enter. Entity choice has real tax and legal consequences — confirm with a CPA and business attorney licensed in your state before filing.

Entity Selection FAQs

LLC vs S-Corp vs C-Corp vs PC/PLLC — the questions founders actually ask

DSCR Calculator

Estimate your Debt Service Coverage Ratio and see if a target business will qualify for an SBA acquisition loan.

LLC vs S-Corp vs C-Corp: Entity Selection Tool

About your business

How to choose between LLC, S-Corp, C-Corp, and PC/PLLC

The four entity types at a glance

The S-Corp break-even

Where to form: state selection

Buying a business? Use an LLC.

Entity Selection FAQs

What is the difference between an LLC and an S-Corp?

When should I choose an LLC over an S-Corp election?

When does S-Corp taxation start saving real money?

When should I choose a C-Corp instead?

What is a PLLC or PC and when do I need one?

Should I form my LLC in Delaware, Wyoming, or my home state?

Can I change my entity type later?

What entity should I use to buy a business with an SBA loan?

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DSCR Calculator