What is the difference between an LLC and an S-Corporation?

An LLC is a business entity type. An S-Corporation is a federal tax election that an eligible LLC or corporation can make. Most LLCs are taxed by default as sole proprietorships or partnerships; electing S-Corp status changes how the IRS taxes the LLC's profits but does not change the entity's underlying legal structure.

Should I form an LLC or a C-Corporation?

For most small businesses, an LLC is the better default — pass-through taxation, simpler paperwork, and full liability protection. Choose a C-Corp if you plan to raise venture capital, issue multiple share classes, offer stock options to employees, or eventually go public. C-Corps face double taxation but are the standard structure for high-growth startups.

Is an LLC better than a sole proprietorship?

For nearly every business that earns real revenue, yes. A sole proprietorship offers zero liability protection — business debts and lawsuits target the owner personally, including their home and savings. An LLC creates a legal wall between the business and the owner. The cost of forming an LLC ($159 in Wisconsin through Anchor Filings, $130 of which is the state fee) is small compared to the protection it provides.

What is the difference between a C-Corp and an S-Corp?

Both are corporations. A C-Corp is taxed as a separate entity (corporate tax on profits, plus tax on dividends — double taxation). An S-Corp is a tax election that lets profits pass through to shareholders' personal returns, avoiding corporate-level tax. S-Corps have restrictions: 100 shareholders maximum, US residents/citizens only, single class of stock. C-Corps have no such limits.

Can I change my business entity type later?

Yes, but it's more work than starting with the right structure. An LLC can elect to be taxed as an S-Corp or C-Corp by filing IRS forms. Converting between entity types (e.g. LLC to corporation) typically requires a state-level conversion or merger filing and may have tax consequences. We can advise on entity changes case by case.

What entity type is best for a nonprofit?

A nonprofit corporation, formed at the state level (in Wisconsin, with WDFI) and then separately applying to the IRS for tax-exempt status, typically under section 501(c)(3). LLCs can technically operate as nonprofits in some states but it's unusual and creates complications with IRS recognition and donor expectations.

Compare Business Entities — LLC vs S-Corp, C-Corp, Sole Prop

LLC vs S-Corporation

The short version: An LLC is a business entity; an S-Corp is a federal tax election. They are not mutually exclusive — most "S-Corps" are LLCs that elected S-Corp tax treatment with the IRS. The real question is: should your LLC stay default-taxed, or elect S-Corp?

	LLC (default taxation)	LLC with S-Corp election
What it is	A state-level business entity	An LLC that filed IRS Form 2553
Liability protection	Yes — full	Yes — full
Federal tax treatment	Pass-through (sole prop or partnership)	Pass-through (Subchapter S)
Self-employment tax	Owners pay SE tax on all profit	Owners split into salary (SE tax) + distributions (no SE tax)
Payroll required	No	Yes — owner-employees must take a "reasonable salary" via payroll
Owner restrictions	None	≤100 owners; US residents/citizens only; single class of ownership
Best for profit level	Any	Roughly $50K+ net profit per owner (where SE tax savings exceed payroll costs)
Annual paperwork	Annual report + Schedule C or partnership return	Annual report + Form 1120-S corporate return + W-2 payroll

Choose default LLC if

Your business earns under ~$50K per owner, you want minimum paperwork, you're still proving the business out, or you want maximum operational simplicity.

Add S-Corp election if

Your business consistently earns $50K+ per owner, you can afford payroll administration (or a payroll service), and the SE tax savings exceed the added compliance cost.

Anchor Filings forms LLCs with default tax treatment. We can help you make an S-Corp election separately when the math works in your favor — free consultation to figure out which fits.

LLC vs C-Corporation

The short version: Both protect your personal assets. The fundamental difference is taxation: an LLC is pass-through (you pay tax once on your personal return); a C-Corp is taxed twice (corporate tax on profits, then personal tax on any dividends). Most small businesses pick LLC. Most venture-backed startups pick C-Corp.

	LLC	C-Corporation
Liability protection	Yes	Yes
Federal taxation	Pass-through (one layer of tax)	Corporate-level tax + tax on dividends (double taxation)
Ownership structure	Members hold flexible "interests"	Shareholders hold stock; multiple share classes possible
Foreign owners allowed	Yes	Yes
Stock options for employees	Awkward (no real stock)	Standard (incentive stock options, restricted stock)
VC funding	Difficult — most VCs require C-Corp	Standard structure for venture capital
Going public (IPO)	Must convert first	Standard path
Annual compliance burden	Lower	Higher (board meetings, minutes, formal records)
Wisconsin filing fee	$130	$100

Choose LLC if

You're a small business, freelancer, real estate investor, or local services company. You want simple taxes, flexible profit splits, and minimal corporate formalities. This describes 90%+ of new US businesses.

Choose C-Corp if

You plan to raise venture capital, grant equity to employees with stock options, eventually go public, or have very specific tax-planning reasons (like the QSBS exclusion under IRC §1202).

We file Wisconsin LLCs ($159) and C-Corporations ($249) — both include state fees and the documents you'll actually need (operating agreement or corporate bylaws).

LLC vs Sole Proprietorship

The short version: A sole proprietorship is what you are by default the moment you start earning money on your own — no paperwork, no protection. An LLC is a one-time filing that puts a legal wall between the business and your personal assets. For nearly every business with real revenue, the LLC is worth the paperwork.

	Sole Proprietorship	LLC
Formation paperwork	None	Articles of Organization + Operating Agreement
Liability protection	None — personal assets at risk	Yes — personal assets shielded
Tax treatment	Pass-through (Schedule C on personal return)	Pass-through by default; can elect S-Corp or C-Corp
Business bank account	Optional but recommended	Essential — required to maintain liability protection
Credibility with banks & clients	Lower	Higher
Ability to raise capital	Personal loans only	Investors can buy ownership interests
Annual cost (Wisconsin)	$0	$25 annual report + ~$59/yr registered agent
Setup cost (Wisconsin)	$0	$159 with Anchor Filings (includes $130 state fee)

Sole prop is fine for

Hobby income, occasional freelance gigs under a few thousand dollars, or testing an idea for a few weeks before committing. Once you're earning meaningful revenue or interacting with paying customers, the calculus changes.

Form an LLC if

You have paying customers, employees or contractors, physical products, real estate, public-facing services (anything where someone could get hurt or upset), or significant revenue. The cost is low, the protection is real.

Upgrading from sole prop to LLC takes about 10 minutes of your time. Wisconsin LLC formation is $159 with Anchor Filings, including the state fee and a custom operating agreement.

LLC vs Partnership

The short version: A general partnership forms automatically the moment two or more people start a business together — like a sole proprietorship, but multiplied. No liability protection, and each partner is personally liable for the debts and bad decisions of every other partner. A multi-member LLC offers the same pass-through tax treatment with full liability protection.

	General Partnership	Multi-Member LLC
Formation	Automatic when 2+ people do business together	Articles of Organization filed with state
Personal liability	Each partner liable for the partnership's debts AND for actions of other partners	Members protected; limited to investment in the LLC
Federal taxation	Pass-through (Form 1065)	Pass-through by default (Form 1065)
Profit allocation	By partnership agreement (or default to equal)	By Operating Agreement — fully flexible
Continuity	Often dissolves on partner exit	Continues per Operating Agreement
Adding/removing partners	Often complicated	Standard via membership transfer rules

General partnership

Almost never the right choice anymore. The only reason to remain a general partnership is inertia — and that's expensive when something goes wrong.

Multi-Member LLC

The modern equivalent of a partnership for any group of co-owners. Same tax simplicity, full liability protection, and a written Operating Agreement that prevents future disputes.

If you're operating as a partnership today, we can help you convert to an LLC while preserving the partnership's tax history.

LLC vs Nonprofit Corporation

The short version: Different goals, different structures. An LLC is for businesses that exist to generate profit for owners. A nonprofit corporation is for organizations that exist to advance a charitable, educational, religious, or public-benefit mission — and that intend to apply for federal tax-exempt status under IRC §501(c)(3) or similar.

	LLC	Nonprofit Corporation
Purpose	Generate profit for owners	Advance a charitable / educational / religious / public mission
Owners	Members hold ownership interests	No owners; governed by a Board of Directors
Profit distribution	Distributed to members per Operating Agreement	Cannot be distributed; reinvested in mission
Federal tax-exempt status	No	Possible under IRC §501(c)(3) etc. — separate IRS application
Tax-deductible donations	No	Yes (after IRS recognition)
Wisconsin filing fee	$130	$35
Annual reporting	State annual report	State annual report + IRS Form 990 series

Choose LLC if

You're building a business that pays you and your co-owners. Even socially-conscious businesses (B-Corps, mission-driven companies) typically organize as LLCs or corporations, not nonprofits.

Choose Nonprofit if

You're forming an organization to do mission work — charity, education, ministry, scientific research, public health — and you intend to apply for IRS tax-exempt status. Donations to your org should be tax-deductible to the donor.

We file Wisconsin nonprofit corporations for $149. The 501(c)(3) federal application is a separate step we can help with on a case-by-case basis.

C-Corporation vs S-Corporation

The short version: A C-Corp and an S-Corp are both corporations under state law — the difference is purely federal tax treatment. C-Corp is the default. S-Corp is what an eligible corporation (or LLC) elects by filing IRS Form 2553. The election fundamentally changes how profits are taxed and who can be an owner.

	C-Corporation	S-Corporation
Tax treatment	Corporate income tax + tax on dividends (double taxation)	Pass-through to shareholders' personal returns
Maximum shareholders	Unlimited	100
Owner eligibility	Anyone — individuals, entities, foreign owners	US individuals/citizens/residents only; no entity owners (with narrow exceptions)
Share classes	Multiple (common, preferred, etc.)	One class of stock only (voting rights can differ)
Best fit	VC-backed startups, businesses planning IPO, equity comp at scale	Profitable small corporations seeking SE tax savings
QSBS §1202 eligibility	Yes	No

C-Corp wins when

You need flexibility — multiple share classes, foreign or institutional investors, stock options for employees, eventual IPO. The double taxation is offset by the ability to retain earnings and the §1202 small-business stock benefit.

S-Corp election wins when

You're a profitable small corporation (or LLC) with all-US owners, a single class of equity, and want to avoid double taxation. SE tax savings are real once profits exceed a "reasonable salary" threshold.

In practice, most LLCs in our caseload that consider an S-Corp election do so once net profit per owner crosses ~$50K. Talk to us about your specific numbers.

Compare Business Entity Types

LLC vs S-Corporation

Choose default LLC if

Add S-Corp election if

LLC vs C-Corporation

Choose LLC if

Choose C-Corp if

LLC vs Sole Proprietorship

Sole prop is fine for

Form an LLC if

LLC vs Partnership

General partnership

Multi-Member LLC

LLC vs Nonprofit Corporation

Choose LLC if

Choose Nonprofit if

C-Corporation vs S-Corporation

C-Corp wins when

S-Corp election wins when

Still Not Sure Which to Pick?

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