How to Describe Your Business Structure (LLC, Corp)
Your legal structure impacts taxes, liability, fundraising ability, and operational complexity. Here's how to choose the right entity and explain it in your business plan.
LLC vs. S-Corp vs. C-Corp: Complete Comparison
| Feature | LLC | S-Corporation | C-Corporation |
|---|---|---|---|
| Best For | Small businesses, real estate, freelancers | Profitable service businesses, 1-100 owners | Venture-backed startups, IPO candidates |
| Liability Protection | ✓ Full (personal assets protected) | ✓ Full | ✓ Full |
| Taxation | Pass-through (profits taxed once at personal rate) | Pass-through (avoid double taxation) | Double taxation (corp + personal on dividends) |
| Self-Employment Tax | ✗ On all profits (15.3%) | ✓ Only on salary (not distributions) | N/A (employees pay payroll tax) |
| Owner Limits | Unlimited | Max 100 shareholders | Unlimited |
| Stock Classes | N/A (membership interests) | One class only | Multiple (common, preferred) |
| VC Funding | ✗ VCs can't invest | ✗ Can't issue preferred stock | ✓ Standard for venture capital |
| Compliance | Low (minimal paperwork) | Medium (payroll, quarterly taxes) | High (board meetings, bylaws, stock records) |
| Formation Cost | $50-$500 | $100-$800 | $100-$800 |
| Annual Costs | $50-$500 (state fees) | $1,500-$3,000 (payroll processing) | $2,000-$5,000+ (accounting, legal) |
Tax Implications (Real Numbers)
Let's compare the same business ($200K profit) under each structure:
LLC (Single Member)
S-Corporation
Saves $15,300 vs. LLC
C-Corporation
*If reinvested in company, no dividend tax
Key Takeaway: For profitable small businesses distributing profits to owners, S-Corp saves ~$15K annually on $200K profit. But C-Corp makes sense if you're reinvesting for growth and need to raise venture capital.
Which Structure Should You Choose?
Choose LLC if:
- ✓You're a solo founder or small partnership (under 5 people)
- ✓You want maximum simplicity and lowest ongoing costs
- ✓You're in real estate, consulting, or local services
- ✓You have no plans to raise outside capital or go public
- ✓Annual profit is under $100K (S-Corp tax savings aren't worth the complexity)
Perfect For:
Freelance designer, local bakery, rental properties, consulting firm
Choose S-Corp if:
- ✓You're consistently profitable ($100K+ annual profit)
- ✓All owners are U.S. citizens/residents
- ✓You want to minimize self-employment tax legally
- ✓You don't plan to raise venture capital or have international investors
- ✓You're willing to run payroll and handle moderate compliance
Perfect For:
Profitable SaaS company (bootstrapped), accounting firm, marketing agency, e-commerce store
Choose C-Corp if:
- ✓You're raising venture capital or plan to within 12 months
- ✓You want to issue stock options to attract top talent
- ✓You plan to IPO or get acquired by a public company
- ✓You'll reinvest profits (not distribute them) for several years
- ✓You may have foreign investors or more than 100 shareholders
Perfect For:
Venture-backed startup, tech company seeking Series A, biotech with R&D, high-growth SaaS
How to Write This in Your Business Plan
Recommended Format (1 paragraph)
Template:
"[Company Name] is structured as a [LLC/S-Corp/C-Corp] incorporated in [State] on [Date]. This structure was chosen because [1-2 sentence rationale]. We currently have [number] owner(s)/shareholder(s) and [have/have not] issued equity to employees/advisors. [If C-Corp: We have authorized X shares of common stock and Y shares of preferred stock.]"
Example 1: Early-Stage Startup (C-Corp)
"PlanAI Pro Inc. is a Delaware C-Corporation formed in January 2025. We chose this structure to accommodate our upcoming seed round and to issue stock options to our team of 8 employees. We currently have 10,000,000 authorized shares of common stock, with 7,000,000 issued to the two founders (vesting over 4 years with a 1-year cliff). We have reserved 2,000,000 shares (20% of outstanding) for our employee stock option pool."
Example 2: Profitable Service Business (S-Corp)
"Acme Consulting LLC elected S-Corporation tax treatment in 2024 to minimize self-employment taxes on our $300K+ annual profit. We are a Nevada LLC with three equal members, each owning 33.33%. This structure provides liability protection while allowing pass-through taxation and avoiding the double taxation of C-Corps. We have no plans to raise outside capital or exceed 100 shareholders, making S-Corp ideal for our growth stage."
Example 3: Solo Entrepreneur (LLC)
"EcoProducts is a single-member LLC formed in California in March 2025. This structure provides personal liability protection for product liability while maintaining the simplicity of pass-through taxation. As a solo founder with no immediate plans to hire W-2 employees or raise outside capital, an LLC offers the best balance of protection, tax efficiency, and low administrative burden."
Additional Details to Include (if applicable)
- Intellectual Property Assignment: "All founders have signed IP assignment agreements transferring ownership of pre-existing work to the company."
- Cap Table: Include a simple ownership table showing each shareholder's % ownership (full details in appendix).
- Future Plans: "We plan to convert to a C-Corp within 12 months to prepare for our Series A fundraise."
- Registered Agent: Required in most states; can mention if using a service like Incfile or CT Corporation.
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