What are the main differences?
Limited Liability Company (LLC)
An LLC is the most popular type of business entity of small business owners who believe they will remain small. It is the least complex business structure and it protects personal assets such as your home and personal financial accounts. Unlike an S Corp or C Corp, the structure of an LLC is flexible. LLC allows for pass-through taxation. Owners also called members, report their profits on their personal tax returns and this avoids double taxation. Another nice feature is that owners do not need to be U.S. citizens or permanent residents.
An S Corp is another option for small business owners who are looking to grow their business to include a board of directors and shareholders. S Corps can sell stock (unlike an LLC), so owners are called shareholders. S Corps also provides pass-through taxation that allows the shareholders to report their profits on their individual tax returns. An S Corp also offers liability protection to separate personal and business assets.
A C Corp is a more structured and complex choice that is used primarily for larger companies. A C Corp is taxed at the corporate level and does not allow pass-through taxation. This means that the company has to file a tax return, and the shareholders have to report their profits on their individual tax returns.
How are these entities managed?
LLCs don't have a specific management structure and are managed by owners or “members".
There are no required job titles, and a small member-managed LLC can be run rather informally. Each member owns a certain percentage of interest in the LLC, but profits can be distributed in any way that the members agree to. However, LLC membership isn't as easily transferred as corporate stock.
Corporations are more structured with a board of directors that oversee everything, officers who run the business day to day, and shareholders who own stock in the company.
Which is the best choice for you depends on your long-term business goals? Although there are a few similarities with the three, they differ in how they are owned, operated, and taxed. You need to evaluate which of these three options is the best fit for your new business.