🏛️ Business Structure Recommender

An LLC is a state-level legal entity that provides liability protection with flexible management and taxation. An S-Corp is a federal tax election (filed with the IRS) that an LLC or corporation can make to avoid double taxation. When an LLC elects S-Corp status, the owner pays themselves a reasonable salary (subject to payroll taxes) and takes additional profits as distributions (not subject to self-employment tax). S-Corp election saves money once net income exceeds roughly $40,000–$60,000/year, but adds payroll complexity.

For startups seeking venture capital or planning to go public, a Delaware C-Corp is the industry standard. VCs prefer C-Corps because: (1) they can issue preferred stock, (2) QSBS tax exclusions apply, (3) they can option plans (ISOs) for employees more cleanly, and (4) Delaware's Court of Chancery provides predictable corporate law. For bootstrapped startups with no near-term VC plans, an LLC is simpler and more flexible.

A sole proprietorship is the simplest business structure — no state filing required, no fees. You and the business are legally one and the same. It makes sense for very early-stage testing, side gigs, or low-risk activities. The major downside: unlimited personal liability. One lawsuit can reach your personal assets (home, car, savings). As soon as your business generates meaningful revenue or has any liability exposure, an LLC provides essential protection for minimal cost.

Pass-through taxation means business profits "pass through" to the owner's personal tax return, avoiding the double taxation that C-Corporations face (corporate income tax + personal income tax on dividends). LLCs, S-Corps, and partnerships all use pass-through taxation by default. C-Corps face double taxation but have advantages including lower corporate tax rates, QSBS exclusions for investors, and retained earnings flexibility.

An LLC filing with the state is separate from business licenses and permits. Depending on your industry and location, you may need: a local business license (city/county), a state professional license (attorneys, doctors, contractors), industry-specific permits (food handler's permit, contractor license), a sales tax permit if selling taxable goods, and a home occupation permit if operating from home. Formation is step one — licenses and permits come next.