Choosing a Business Entity

Entity choice is the first structural decision most owners make and the one they most often revisit. The confusing part is that two separate systems are involved. A state decides what legal entity you form, and the IRS decides how that entity is taxed. Once you see those as different questions, the menu of options becomes manageable: you can be a sole proprietor, an LLC taxed as a disregarded entity or partnership, an LLC or corporation taxed as an S-corp, or a corporation taxed as a C-corp.

This hub is organized to follow the way owners actually make the decision. Start with the overview comparison in LLC vs S-corp vs C-corp, which lays out liability, tax, ownership, and administrative differences side by side. If you are still operating on your own with no entity, read sole proprietorship vs LLC to see what forming an LLC really changes, and what it leaves alone.

Next, look at how the default tax treatment works. The guides on single-member LLC taxes and multi-member LLC taxes explain what gets reported where, why self-employment tax applies, and what changes when a second owner appears. Then, if profit is growing, the guide on when to elect S-corp status offers a framework for weighing payroll savings against compliance cost. Owners who expect investors or a long reinvestment runway should read about C-corporations for small business.

Finally, remember that entity choice is not permanent. The article on changing entity type covers elections, statutory conversions, and asset transfers, with the tax and contract issues to check before you move.

Two cautions run through everything here. First, the right answer depends on your numbers, your state, and your plans, so treat any rule of thumb as a starting point. Second, elections and filings have deadlines, so planning before the tax year begins is almost always cheaper than repairing afterward. The related hub on S-corporations goes deeper on the election once you decide it fits, and formation and governance covers the paperwork of setting an entity up.