These three come up every time someone starts a business, and people mix them up because they are not the same kind of thing. An LLC and a Corp are legal structures. An S-Corp is a tax election. That one distinction clears up most of the confusion.
Two are structures, one is a tax status
An LLC and a corporation are entities you form with the state. An S-Corp is not an entity you form. It is a tax election that an LLC or a corporation makes with the IRS. You can have an LLC taxed as an S-Corp, or a corporation taxed as an S-Corp. The label describes how you are taxed, not what you registered.
The quick comparison
| LLC | C-Corp | S-Corp (election) | |
|---|---|---|---|
| What it is | State entity | State entity | Tax status |
| Taxed how | Pass-through by default | Pays its own tax | Pass-through |
| Double tax | No | Yes, profit then dividends | No |
| Owner pay | Owner’s draw | Salary + dividends | Reasonable salary + distribution |
| Best when | Simple and flexible | Outside investors, retained profit | Profit high enough to cut SE tax |
What each one is good at
An LLC gives you liability protection and simple pass-through tax with little paperwork. A C-Corp fits a company raising outside money or keeping profit inside to grow, and it accepts double taxation in exchange. The S-Corp election is the move once your profit is high enough that cutting self-employment tax outweighs the added payroll and paperwork.
You do not choose between an LLC and an S-Corp. You choose an entity, then decide how it gets taxed.
The order that trips people up
Structure first, tax election second
Most small businesses form an LLC for the legal protection, then elect S-Corp taxation later, once the profit justifies it. You are not locked in. The entity and the tax status are two separate decisions, made at two different times.
Which one fits you
The answer depends on your profit, whether you have partners or investors, and how you want to pay yourself. Two of those questions have their own articles: whether an S-Corp owner has to be an employee, and whether you can be an employee of your own LLC. If you want the structure matched to your actual numbers instead of a rule of thumb, that is a short conversation. Book a consultation.