Among the many decisions you need to make when launching a business is selecting a business structure. If you do nothing, your business, by default, is structured as either a general partnership (multiple owners) or sole proprietorship (solo owner). These may be the simplest entities to form, but they offer one major drawback: There’s no separation between the business and business owner.
If your partnership or sole proprietorship business is sued or can’t pay its bills, your personal assets can be on the hook. That is why both the Limited Liability Company (LLC) and C corporation, or just corporation, are popular business structures, as they minimize the owner’s personal liability. Yet, they have vastly different approaches to taxation.
Here we’ll break down the five key differences between how an LLC and corporation are taxed. While these pointers can be a great starting point, you should consult a tax advisor if you have any questions about how these differences apply to your particular situation.