Sole Proprietorship vs. LLC vs. S-Corp vs. C-Corp: What's the Difference?

When starting a business, one of the first decisions you'll need to make is what type of business structure to choose. There are four main types of business structures: sole proprietorships, limited liability companies (LLCs), S-corporations, and C-corporations. Each type has its own advantages and disadvantages, so it's important to choose the one that's right for your business.

Sole Proprietorship

A sole proprietorship is the simplest and most common type of business structure. It's a business that's owned and operated by one person. Sole proprietorships are easy to set up and maintain, and there are no formal filing requirements. However, sole proprietors have unlimited liability, which means that they are personally responsible for all of the business's debts and liabilities.

LLC

An LLC is a hybrid business structure that combines the limited liability of a corporation with the tax flexibility of a sole proprietorship or partnership. LLCs are easy to set up and maintain, and they offer their owners limited liability protection. However, LLCs can be more complex to tax than sole proprietorships, and they may not be able to raise capital as easily as corporations.

S-Corporation

An S-corporation is a type of corporation that elects to be taxed as a pass-through entity. This means that the corporation's income and losses are passed through to the shareholders, who report them on their personal tax returns. S-corporations must meet certain requirements, such as having no more than 100 shareholders. S-corporations offer their owners limited liability protection and pass-through taxation, but they can be more complex to set up and maintain than LLCs.

C-Corporation

A C-corporation is a traditional type of corporation that is taxed separately from its owners. C-corporations can raise capital more easily than other types of business structures, and they offer their owners limited liability protection. However, C-corporations are the most complex and expensive type of business structure to set up and maintain.

Which business structure is right for you?

The best business structure for you will depend on your individual circumstances and business goals. If you're starting a small business and you're the only owner, a sole proprietorship may be the simplest and most cost-effective option. If you're starting a business with multiple owners or you need limited liability protection, an LLC or S-corporation may be a better choice. If you're planning to raise capital from investors or you need to take advantage of certain tax benefits, a C-corporation may be the best option for you.

It's important to consult with an attorney or accountant to discuss your individual circumstances and choose the right business structure for your business.

‍