With record numbers of people starting businesses, choosing the right legal structure has never been more important. Whether you're a freelancer turning full-time, building a team, or prepping for investment, your business entity shapes your taxes, funding options, and liability.
In this post, we break down the key differences between LLCs, Corporations, and Partnerships, plus the pros and cons of each.
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What is an LLC (Limited Liability Company)?
An LLC is a hybrid legal structure that blends the simplicity of a sole proprietorship with the personal liability protection of a corporation. It’s a flexible option for solo entrepreneurs, partners, and growing teams.
Key Benefits:
- Personal asset protection
- Pass-through taxation (or elect corporate taxation)
- Fewer reporting and management requirements than corporations
- Unlimited members allowed
LLCs are formed through Articles of Organization and typically governed by an Operating Agreement outlining roles, ownership, and profit-sharing.
Best for: Founders who want legal protection, tax flexibility, and a low-maintenance setup.
Things to consider: You’ll still pay self-employment taxes, and some states charge annual LLC fees.
What is a Corporation?
A corporation is a more formal structure that legally separates the business from its owners (shareholders). The two main types are:
- C Corporation (C-corp): Pays corporate taxes. Can issue multiple classes of stock and raise capital from unlimited shareholders.
- S Corporation (S-corp): Offers pass-through taxation, but limits ownership to 100 shareholders and one class of stock.
Corporations are required to:
- File Articles of Incorporation
- Elect a Board of Directors
- Hold annual meetings and maintain formal records
Best for: Companies planning to raise venture capital or go public.
Things to consider: More paperwork, formalities, and “double taxation” for C-corps.
What is a Partnership?
A partnership is the simplest way for two or more people to go into business together. There are two main types:
- General Partnership (GP): All partners manage the business and share liability.
- Limited Partnership (LP): One or more partners act as passive investors with limited liability.
Profits and losses are split based on ownership percentages and reported on each partner’s personal tax return using a Schedule K-1.
Best for: Low-cost, low-complexity ventures between two or more co-founders.
Things to consider: General partners are personally liable for business debts unless you form an LLP (Limited Liability Partnership).
Final Thoughts: What's Right for You?
Choosing your business structure depends on your long-term goals:
- LLC: Ideal if you want liability protection, tax flexibility, and a simple setup.
- Corporation: Right for you if you’re planning to raise funding or go public.
- Partnership: A hassle-free option for multiple founders, just be cautious of liability exposure.
Need more help? Book a 1-on-1 call with a Skip expert.
