LLC vs S-Corp vs C-Corp — which should I pick?

These are three different things often confused: LLC and Corporation are state-level entity types, while S-Corp and C-Corp are IRS tax classifications. An LLC can elect S-Corp or C-Corp tax treatment without changing its state status.

LLC (default)

The default for most small businesses. State-level liability protection. Single-member is taxed as sole prop, multi-member as partnership. Easy to form, cheap to maintain. Pick this unless you have a reason not to.

LLC with S-Corp tax election

Same LLC entity at the state level, but you file Form 2553 with the IRS to be taxed as an S-Corp. Why: above ~$60k net annual profit, S-Corp lets you split income between salary (subject to FICA/Medicare) and distributions (not subject to those taxes). Saves real money — but adds payroll complexity.

Corporation (C-Corp)

A separate state-level entity, taxed independently. Faces double taxation: corporate tax on profits, then dividend tax when distributed to owners. The reason to pick this: VC investors require C-Corps (specifically Delaware C-Corps) because the share structure cleanly handles preferred shares, vesting, options, etc.

Corporation (S-Corp)

A C-Corp that elected S-Corp taxation. Same restrictions as LLC-with-S-Corp election (≤100 shareholders, all US citizens/residents, one class of stock). Less flexible than an LLC but provides W-2 wages directly. Rarely the right starting point for small businesses.