Choosing the Right Business Entity: LLC, S-Corp, Sole Prop (and Yes, C-Corp Too)
Starting a business? Or maybe you’ve been operating as a lone wolf and are ready to make things official. Either way, it’s time to talk about business entity types—the legal structure that determines how you’re taxed, how much personal risk you’re exposed to, and whether the IRS gives you side-eye during tax season.
This blog will walk you through the four main business entity types: Sole Proprietorship, LLC, S Corporation, and C Corporation—complete with pros, cons, and real-world advice to help you choose the right one for your business.
Entity Type #1: Sole Proprietorship
AKA: The “I just started this thing on Etsy” option
What it is:
A Sole Proprietorship is the default structure for solo entrepreneurs. No paperwork required (unless you’re into that sort of thing), and no legal separation between you and your business.
Pros:
Super easy to start—just start selling
Low maintenance and minimal setup
Simple tax filing (income reported on your personal return)
Cons:
No liability protection—if something goes wrong, your personal assets are fair game
Potential for higher self-employment taxes
Best for:
Freelancers, side hustlers, and anyone testing the entrepreneurial waters without wanting to dive into the paperwork just yet.
Entity Type #2: Limited Liability Company (LLC)
AKA: The “I’m legit, but chill” choice
What it is:
An LLC (Limited Liability Company) creates legal separation between your personal and business assets. It’s flexible in how it’s taxed and provides some sweet liability protection.
Pros:
Personal liability protection (your house = safe)
Tax flexibility (default to pass-through or elect S-Corp)
No double taxation if you go with default pass-through taxation
Cons:
You must keep your business and personal finances separate (no swiping the business card at Sephora)
State fees and annual paperwork can vary—and yes, it’s annoying
Best for:
Small business owners who want protection and flexibility without a full corporate vibe.
Entity Type #3: S Corporation (S-Corp)
AKA: The “I’m profiting and I don’t want to give it all to the IRS” route
What it is:
An S-Corp is not a type of business—it’s a tax election. Your business can be an LLC or corporation that chooses to be taxed as an S-Corp to potentially save on self-employment taxes.
Pros:
Potential savings on self-employment taxes
You can split income between salary and owner distributions
Pass-through taxation = no corporate income tax
Cons:
More compliance (hello, payroll and corporate filings)
Must pay yourself a “reasonable salary”—and yes, the IRS checks
Limited to 100 U.S.-based shareholders
Best for:
Established businesses with consistent profits over $70,000/year that want to save on taxes without going full corporate.
Entity Type #4: C Corporation (C-Corp)
AKA: The “I’m building an empire” model
What it is:
A C-Corp is a completely separate legal and tax entity from its owners. This is the go-to structure for big businesses, especially those seeking investors or planning to go public.
Pros:
Strong liability protection
Easier to raise capital through shares
Potential tax planning advantages if you’re reinvesting profits
Cons:
Double taxation: the corporation pays taxes on profits, and then shareholders pay taxes again on dividends
Heavier compliance and ongoing reporting requirements
Can be overkill for smaller operations
Best for:
Startups planning to raise capital, attract investors, or eventually go public—or businesses that want long-term tax planning options.
So, Which Business Entity Should You Choose?
It depends on where you are in your journey. Just getting started and testing an idea? Sole Prop might be fine for now. Want some protection and flexibility? LLC is probably your jam. Seeing real profits and ready to tax-optimize? Time to look at the S-Corp election. Building something big and investor-worthy? Hello, C-Corp.
Still not sure which one is best for your situation? I offer a free 15-minute consultation to help you make the right call before the IRS makes one for you.
Let’s make sure your business is structured for success—and sanity!
