C-Corp vs. LLC vs. S-Corp: Which structure actually fits your startup?

When starting your own business, it’s important to not try to fit a square peg into a round hole. While there are a variety of corporate structures available to founders, picking the right one can help you hit the ground running.

The three main corporate structures are a C-Corporation, an LLC, and an S-Corporation. Let’s break down the definitions, tax protections, and benefits of each one.

What’s a C-Corp?

A C-Corp is just a fancy name for a corporation. The defining characteristic of a corporation is that the company is legally separate from its owners, stockholders, and shareholders, meaning the company—not its owners and holders—would be on the hook for any debt or legal issues.

To create a C-Corp, owners must establish corporate bylaws and file articles of incorporation with the state the business is in. (Should that state be Delaware? Read on…) In general, incorporating a business can also include forming a board of directors, issuing stock, creating shareholders’ agreements, and getting an Employer Identification Number from the IRS.

For startups, registering as a corporation—rather than an LLC—can give your new business a bit more credibility. But that has to be earned: Corporations need to have a board of directors and produce annual reports. Corporations also have to pay corporate income taxes, and shareholders are also personally taxed on the profit, or capital gains, they retain from the corporation. This is referred to as “double taxation.”

What’s an LLC?

A limited liability company, or LLC, is a structure that mixes sole or partnered ownership of a company with corporate ownership. Like a corporation, the owner of an LLC isn’t personally responsible for their company’s debts. But unlike a corporation, any profits and losses an LLC experiences fall under the owner’s personal finances.

Owners of LLCs can report the finances of their LLC through their own tax filings, though they do have to pay the self-employment tax as well. But per an LLC’s hybrid nature, owners can also choose to have the LLC considered a corporation for tax reasons.

When it comes to startups, an LLC can be created quicker than a corporation. That’s why they’re the leading business structure in the US.

What’s an S-Corp?

Though S-Corps are named for the Internal Revenue Code’s Subchapter S,—referring to how the business is taxed—you can also think of the “S” as standing for “shareholders.” An S-Corp passes its income and losses to its shareholders and doesn’t pay corporate taxes. That means it doesn’t face the double taxation that C-Corps and their shareholders do, but S-Corp shareholders are taxed for their income from the business via their personal filings.

There are some conditions, though. Only a company that has fewer than 100 shareholders can be an S-Corp, and corporations and partnerships cannot invest in the business. S-Corps also can’t have anyone deemed a “nonresident alien” as a shareholder.

Where should you incorporate?

Delaware has long been thought of as a haven for corporations and LLCs, and a majority of Fortune 500 businesses are incorporated in the state. The biggest draw is its Court of Chancery, a specialized court system for business disputes that’s amassed comprehensive precedent for corporate cases. Knowing that business dealings will be handled in this specialized court can also be an asset for attracting investors.

And there are other benefits to basing your corporation or LLC in Delaware: The state doesn’t tax corporate revenue earned out of state, meaning if your business is headquartered elsewhere, you won’t have to pay Delaware’s income tax, too. That said, it does impose a yearly franchise tax, and you might have to pay an out-of-state income tax in your company’s home base, too.

What is DExit?

In the past few years, some companies have exited Delaware (hence “DExit”) and re-incorporated in other states—namely Texas and Nevada—because their higher ups don’t agree with recent decisions made by Delaware’s Court of Chancery. The Texas Business Court has been offering an alternative to Delaware since 2024, and the state’s Business Organization Code defers to businesses and can reduce litigation costs. Texas does impose a corporate franchise tax, though.

As for Nevada, it doesn’t require a corporate franchise tax, and its business judgement rule, a standard of review for corporate disputes, is more favorable to directors of companies than Texas’s or Delaware’s. Still, the number of new companies incorporating in Delaware remains on the rise.