What's the Difference Between an LLC and a Corporation?

Part of our Corporate & Startup series.

An LLC and a Corporation both shield your personal assets from business debts and lawsuits, but they differ in how they're taxed, how ownership works, and how easily you can raise outside investment.

The basics

An LLC (limited liability company) is typically taxed as a pass-through entity, meaning the business itself doesn't pay federal income tax; profits flow to the owners' personal returns. Ownership is flexible and less formal, with fewer required meetings and filings.

A corporation (specifically a C-corp, the type most startups use) can issue multiple classes of stock, which is how venture capital deals are typically structured. It's subject to more formalities (bylaws, a board, annual meetings) and, in theory, can face taxation at both the corporate and shareholder level, though that rarely matters for an early-stage company that isn't yet profitable.

Broadly: LLCs suit smaller, simpler, founder-owned businesses. Corporations suit companies planning to raise institutional investment or issue employee stock options at scale.

What actually changes the answer

The right structure for you depends on specifics an article can't answer in the abstract:

• Whether you plan to raise venture capital, and on what timeline
• Whether you want to offer employees equity in a way sophisticated candidates expect
• How many owners are involved and how you want profits distributed
• Your state's specific tax treatment of each entity type, which varies

Founders sometimes start as an LLC to save money early, then need to convert to a corporation once a fundraise is in motion, a process that takes real time and legal work at exactly the moment speed matters most.

Next step

If there's any real chance you'll raise outside money, this decision is worth getting right before you file rather than fixing later. Book a quick call and we'll walk through your specific plans before you commit to a structure.