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LLC or S-Corp or C-Corp -- what's the difference?

So you've got a great idea and you're going to start a side gig or a small business, but you don't really know where to start. You've heard about LLCs and corporations and a guy hooked you up with a couple of templates, but you're just not entirely sure what to do. But being an entrepreneur, you're more than likely going to want to do it yourself.

There are three things you need to think about when you decide what kind of business to form. Those are liability, taxes, and your exit plan. Always think of those three things, taxes, liability, and your exit plan and use the appropriate professionals for each one of those.

Advantages and Disadvantages

  • Sole proprietorship  Plus: easiest, least expensive to start. Minus: unlimited personal liability.
  • Limited Liability Company  Plus: not difficult, not much more expensive. Extremely flexible on how to count income. Minus: ignore your operating agreement or comingle assets and you could lose the limited liability part. 
  • C-Corp or Corporation  Plus: excellent liability protection, attractive to investors. Easy to add more shareholders. Minus: can be cumbersome and expensive to maintain. Founder may lose control with a Board to report to.
  • S-Corp  Not a separate form of entity, but simply a tax election by an LLC or a C-Corp that turn it into a pass-through entity.

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