You are starting a business. Or maybe you already have one and are wondering if your current structure is still the right fit. The question is always the same: should I be a sole proprietor, an LLC, an S-Corp, or a C-Corp?
When I started my first business, I spent weeks agonizing over entity choice. LLC or sole prop? S-Corp or C-Corp? I asked five people and got six opinions. Looking back, I wish I had a tool like this to cut through the noise.
Honestly? The answer changes as your business grows. What works at $20K in revenue is usually wrong at $200K. Let me walk you through each option so you can make an informed decision.
📊 The Short Answer
Sole Prop: Best under $30K. Free, simple, but risky (no liability protection).
LLC: Best for $30K-200K. Liability protection, moderate cost, full SE tax.
S-Corp: Best for $80K+. Saves thousands on SE tax, but needs payroll.
C-Corp: Best for VC-funded high-growth startups. Biggest tax burden for small businesses.
Not sure? Take our 7-question quiz — it recommends the right entity in 60 seconds.
Comparison at a Glance
| Factor | Sole Prop | LLC | S-Corp | C-Corp |
|---|---|---|---|---|
| Setup Cost | $0 | $100-800 | $500-2,000 | $500-2,000 |
| Liability Protection | ❌ No | ✅ Yes | ✅ Yes | ✅ Yes |
| SE Tax Savings | ❌ None | ❌ None | ✅ Yes* | ✅ Yes* |
| Raising Investment | ❌ Hard | Possible | Possible | ✅ Best |
| Paperwork | ✅ Minimal | ✅ Low | ❌ Moderate | ❌ High |
Sole Proprietorship — Simple but Risky
This is the default. If you start doing business without filing any paperwork, you are a sole proprietor. No formation costs, no annual filings, just report your income on Schedule C. Sounds great, right? Well, there is one huge downside: zero liability protection. If your business gets sued, your personal savings, house, and car are all on the line.
LLC — The Sweet Spot for Most Businesses
An LLC gives you the liability protection of a corporation with the tax simplicity of a sole proprietorship. Your personal assets stay separate. Formation costs $100-800 depending on your state. The downside? You still pay the full 15.3% self-employment tax on all your income. But you can always elect S-Corp status later.
S-Corp — Tax Savings for Higher Earners
Once your income passes $80K, S-Corp election starts making sense. You split your income into salary (subject to payroll tax) and distributions (SE tax-free). The savings can be $3,000-6,000/year. The trade-off? Payroll processing, reasonable salary rules, and Form 1120-S each year.
C-Corp — For High-Growth Startups
If you plan to raise venture capital or go public, C-Corp is the standard. It allows unlimited stock classes, equity incentives, and is what investors expect. For a normal small business or freelance operation? It is almost always the wrong choice due to double taxation and high compliance costs.
🎯 Find Your Entity
Answer 7 quick questions and get a personalized recommendation.
🔄 Take the Entity QuizFAQ
Yes, absolutely. Many businesses start as sole proprietorships and form an LLC when they reach $20-30K in income or take on liability risk. It is a straightforward process.
Not directly. An LLC itself does not reduce your tax bill. You still pay self-employment tax on all income. However, an LLC gives you the flexibility to elect S-Corp status, which can save thousands on SE tax.
In most states, online filing takes 1-3 business days. Some states (like New York) take 2-3 weeks. Expedited processing is usually available for an extra fee.