Understanding the Fundamentals
Choosing between an LLC and a C Corporation is one of the most important decisions you'll make as a founder. Each structure has distinct implications for taxes, fundraising, ownership, and long-term growth.
Limited Liability Company (LLC)
An LLC combines the liability protection of a corporation with the tax flexibility of a partnership. It's often the preferred choice for small businesses, real estate holdings, and bootstrapped startups.
Key Characteristics
**Pass-Through Taxation**: By default, LLC profits and losses "pass through" to owners' personal tax returns. The business itself doesn't pay federal income tax. This avoids the "double taxation" that C Corps face.
**Flexible Ownership**: LLCs can have any number of members (owners) and aren't restricted by ownership type. Members can be individuals, other LLCs, corporations, or even foreign entities.
**Operational Flexibility**: LLCs have fewer formalities than corporations. No required board meetings, shareholder votes, or extensive record-keeping. The operating agreement governs most decisions.
**Self-Employment Taxes**: Active LLC members typically pay self-employment tax (15.3%) on their share of profits, in addition to income tax.
C Corporation
A C Corporation is a separate legal entity that pays its own taxes. It's the standard structure for venture-backed startups and public companies.
Key Characteristics
**Separate Taxation**: C Corps pay corporate income tax on profits (21% federal rate). When profits are distributed as dividends, shareholders pay taxes again—hence "double taxation."
**Stock-Based Compensation**: C Corps can issue stock options, RSUs, and other equity compensation that receives favorable tax treatment (QSBS, 83(b) elections, etc.).
**Investor Preference**: VCs and institutional investors almost universally require C Corp structure. They need the ability to issue preferred stock and maintain clear cap tables.
**Unlimited Growth Potential**: No restrictions on shareholders, share classes, or ownership structure. C Corps can go public, be acquired, or scale indefinitely.
Tax Comparison
When to Choose an LLC
Bootstrapped businesses: Avoid double taxation when you're not taking outside investment
Real estate holdings: Pass-through taxation is ideal for rental income
Consulting or services: Simple structure for solo or small teams
Side projects: Low overhead for testing ideas
When to Choose a C Corporation
Seeking venture capital: Required by virtually all institutional investors
Planning equity compensation: Stock options require C Corp structure
Targeting acquisition or IPO: Standard structure for exits
Expecting significant profits: QSBS can exclude up to $10M in gains from taxes
The Conversion Question
Many founders start with an LLC and convert to a C Corp when raising venture capital. This is possible but involves:
Legal costs ($5,000-$15,000+)
Potential tax implications
Restructuring operating agreements into corporate bylaws
Creating a proper cap table
At StableCorp, we help founders choose the right structure from the start—or manage the conversion when the time is right.
Making Your Decision
The right choice depends on your specific situation:
**Funding plans**: VC track = C Corp
**Tax optimization**: Bootstrapped = LLC
**Exit strategy**: Acquisition/IPO = C Corp
**Ownership complexity**: Multiple classes of stock = C Corp
**Simplicity**: Minimal paperwork = LLC
Our AI-powered platform analyzes these factors and more to recommend the optimal structure for your business.