Different Types of Corporate Structures
You’ll learn about the four main types of business entity below — LLCs, S Corporations, C Corporations and nonprofits, so you can decide which will best meet your needs.
Limited Liability Company (LLC)
The LLC is one of the most popular types of business entities. It’s ideally suited for smaller organizations and startups, for several reasons:
- LLCs are fast and easy to setup.
- LLCs have a simple business structure.
- Forming an LLC is generally inexpensive.
- Running an LLC is easier than running a C Corp or S Corp.
- There are fewer rules, regulations and legal compliance issues for LLCs.
- LLCs are formed and regulated on a state level.
The cost and policies governing an LLC do vary from state to state. Check out our LLC State Information resource for additional info on your state.
LLC Limited Liability Protection
Like C Corps and S Corps, LLCs provide their owners with limited liability protection. This means the business assets are owned separately by the LLC, not by the owners. Any liability the business has (e.g. monies owed, equipment, depreciation, lawsuits, etc.) are purely the liability of the business, and do not (generally) have any impact on the individual owner’s personal assets.
LLC Taxes and Tax Returns
An LLC does not pay federal income tax itself. Instead, any net profit or loss is “passed through” to the personal tax returns of the owners or members. It is then taxed as personal income by the IRS. In this sense, taxation of an LLC is very similar to taxation of a sole-proprietorship or partnership.
Types of Tax an LLC is Liable For
It’s important to note that an LLC will be liable for certain types of tax, for example:
- Payroll tax on salaries paid to employees (but not to members or owners — they will pay self-employment tax on their personal tax returns).
- Sales tax on goods purchased by and for the business.
- Property taxes on owned business property.
- In certain cases, other types of tax or tariffs may need to be paid by an LLC.
- Generally, these taxes can be subtracted as business expenses and do not flow through to individual owner’s tax returns.