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LLC vs S-corp vs C-corp vs partnership: differences, pros and cons

The short version: an S-corp isn't a type of company. It's a tax election an LLC or corporation can make. So the real choices are which entity to form (an LLC, a corporation or, with partners, a partnership), and whether to elect S-corp tax treatment once profit is high enough.

2026 federal rates · every figure links to its source

By FormCost editorial team · Last reviewed October 28, 2026 · How we check sources

Would an S-corp save you tax?Enter your profit and salary: 2026 S-corp calculator What does an LLC cost in your state?Filing fees and yearly costs for all 50 states + DC

Not sure where to start? Take the which-structure quiz, or see nonprofit vs LLC if your goal is a mission rather than profit.

The four options in plain English

LLC (limited liability company). A company you form with your state. It separates business debts from your personal assets, and by default the IRS ignores it for income tax: a one-owner LLC is taxed like a sole proprietorship and a multi-owner LLC like a partnership (IRS: LLCs). You pay income tax plus self-employment tax on the profit.

S-corp (S corporation). A tax status, not an entity. An LLC or corporation files Form 2553 to be taxed under Subchapter S. Profit still passes through to the owners' personal returns, but owners who work in the business are paid a salary through payroll, and only that salary carries Social Security and Medicare tax (IRS: S corporations).

C-corp (C corporation). The standard corporation. It pays its own federal income tax at a flat 21% (Form 1120 instructions), and when it pays out dividends, shareholders pay tax on them again (IRS: forming a corporation, IRS Topic 404, IRS Publication 542).

Partnership. Two or more people running a business together for profit form a general partnership, often without any state filing. Profit passes through: the partnership files Form 1065 and each partner reports a K-1 share on their own return (IRS Publication 541). The catch is liability: general partners are personally on the hook for the business's debts. Two registered variants add a shield: a limited partnership (LP) protects its limited (passive) partners, and a limited liability partnership (LLP), often limited to licensed professions, protects partners from each other's malpractice. A multi-member LLC is taxed as a partnership by default too, but keeps the LLC's liability shield.

Official overviews: U.S. Small Business Administration (SBA): Choose a business structure · IRS: Small Businesses and Self-Employed

Side-by-side comparison

LLC (default tax)LLC or corp taxed as S-corpC-corpPartnership
What it isA state-law entityA federal tax election made by an LLC or corporation on Form 2553A state-law corporation taxed under the regular corporate rulesTwo or more people in business together for profit; LP and LLP are registered variants
How you form itFile articles of organization with the stateForm an LLC or corporation, then file Form 2553 with the IRSFile articles of incorporation with the stateOften no state filing for a general partnership; a written agreement is strongly advised. LPs and LLPs file with the state
Liability protectionYes, for business debts (state law)Same as the underlying LLC or corporationYes, for business debts (state law)No for a general partnership: partners are personally liable. LLP and LP limited partners get a shield under state law
Federal income taxPass-through: one owner is taxed like a sole proprietor, two or more like a partnership (IRS)Pass-through: profit is reported on the owners' personal returns (IRS)Taxed at the company level at a flat 21% (Form 1120 instructions)Pass-through: the partnership files Form 1065 and gives each partner a K-1 (Pub 541)
Double taxationNoNo, apart from some built-in gains and passive incomeYes: profit is taxed to the company, then again as dividends (IRS)No
Self-employment tax15.3% on 92.35% of profit; Social Security part stops at $184,500 in 2026 (IRS)15.3% payroll tax on your salary only; distributions carry no payroll taxPayroll tax on salaries; dividends carry no payroll tax15.3% on general partners’ shares of trade or business profit, like a default LLC
Salary requirementNone: owners take drawsWorking owners must take reasonable compensationWorking owners are employees on payrollNone: partners take draws; guaranteed payments are possible
Admin and paperworkLightest: state annual report, profit on your own returnPayroll (Forms 941, 940, W-2), plus a separate Form 1120-S returnPayroll, Form 1120, board and shareholder formalitiesForm 1065 and K-1s each year, DBA where needed; LP/LLP state reports
Ownership limitsNoneUp to 100 shareholders; only individuals, estates and certain trusts; no nonresident aliens; one class of stock (IRS)None: any number or type of owners, several classes of stockAt least two partners; any type of owner
Raising investmentPossible, but most venture investors avoid LLCsHard: one class of stock and no corporate or foreign investorsEasiest: the standard choice for venture capitalPossible through an LP; rare for venture capital
State fees and taxes (examples)Florida $138.75 annual report (source); Delaware $400 annual tax (source); Wyoming $60 minimum (source); California $800 annual tax (source)Same state fees as the entity, plus some states tax S-corps: California 1.5% of income, $800 minimum (source)State corporate income tax, e.g. California 8.84% (source)General partnership: often $0 to form, but DBA fees vary by state or county. LP/LLP: state filing fees, check with the state

Federal rules for 2026. State fees are examples from our LLC cost by state data, checked October 28, 2026.

LLC

Pros

  • Cheapest and simplest to run
  • Liability protection from day one
  • No payroll needed for the owners
  • Flexible: can elect S-corp tax later

Cons

  • 15.3% self-employment tax on most of the profit
  • Some states charge a yearly tax (California $800)
  • Not what venture investors want

S-corp election

Pros

  • Payroll tax only on salary, not distributions
  • Still pass-through: no corporate-level federal tax
  • Keeps your LLC or corporation as is

Cons

  • Must pay yourself a reasonable salary
  • Payroll, unemployment tax and a Form 1120-S return each year
  • Salary doesn't count toward the 20% QBI deduction
  • Strict owner rules: 100 shareholders, no nonresident aliens, one class of stock

C-corp

Pros

  • Standard for raising venture capital
  • Any number or type of shareholders, several stock classes
  • Profit kept in the business is taxed at a flat 21%

Cons

  • Double taxation on dividends
  • Most admin: board, minutes, separate return
  • Losses stay in the company, not on your return

General partnership

Pros

  • Often no state filing fee to form
  • Pass-through tax, flexible profit splits
  • Simple to start with a written agreement

Cons

  • No liability shield: personal assets at risk, including for partners' business decisions
  • Form 1065 and K-1s every year
  • 15.3% self-employment tax on partners' shares

When an S-corp election usually starts to make sense

The saving comes from self-employment tax. As a default LLC you pay 15.3% on 92.35% of your profit. As an S-corp you pay the same 15.3% (half from the company, half from your pay) only on your salary. Against that you pay for payroll, unemployment tax on your salary, an extra business return, and you lose part of the QBI deduction, because salary doesn't count as qualified business income.

That's why the election rarely pays off at low profit. With a salary of 60% of profit (at least $40,000), our 2026 model breaks even at about $60,000 of profit for a single filer in Florida, and the saving grows from there.

Worked example: Florida, single filer, $100,000 profit, $60,000 salary

Default LLCS-corp
Self-employment / payroll tax$14,130$9,180
Federal income tax$8,235$10,286
Federal + Florida unemployment tax—$231
Payroll service and 1120-S prep—$1,563
Total$22,365$21,260

Net saving: about $1,104 a year. Real, but modest once you count the paperwork. On $150,000 of profit for a married couple in California with a $70,000 salary, the same model shows about $5,894 a year.

Florida has no state income tax. Self-employment tax: 15.3% of 92.35% × $100,000. S-corp payroll tax: 15.3% × $60,000. Federal income tax uses 2026 brackets, the standard deduction and the QBI deduction. Payroll $660 and 1120-S prep $903 are typical costs. Figures from our S-corp calculator.

Run your own numbers →

A few rules of thumb:

What a partnership really costs

A $0 state fee doesn't make a partnership free. Typical first-year costs:

State filing to form a general partnership varies
Many states don't require one. Check your state's business filing office (list by state).		Often $0
DBA / assumed-name filing varies
Needed in many places if you trade under a name other than the partners' own names; filed with the state or county, fees vary (SBA: register your business).		Check with the state
LP or LLP registration varies
Only if you choose a limited partnership or limited liability partnership; these are state filings with their own fees and often yearly reports.		Check with the state
Written partnership agreement typical
About $35 for a DIY template (Nolo); typically $500–$2,000 flat fee from an attorney (LegalClarity).		$35–$2,000
Form 1065 + partner K-1s, yearly typical
National Society of Accountants survey average for Form 1065 (2020–21 survey, likely higher today). No IRS filing fee; IRS Pub 541.		About $733
Self-employment tax on each partner’s share typical
On 92.35% of a general partner's share of trade or business profit, up to the Social Security wage base for the 12.4% part (IRS).		15.3%

Because general partners have no liability shield, many partnerships also budget for general liability or professional liability insurance; premiums depend heavily on the trade. If you want pass-through tax with partners but also a liability shield, a multi-member LLC is taxed the same way by default; compare LLC costs by state.

When a C-corp makes sense

Mostly when you plan to raise money from venture investors, want to give employees stock options across several share classes, or have foreign or corporate owners (who can't own an S-corp). For a profitable owner-operated business that pays its profit out to the owner, the double tax usually makes a C-corp the more expensive choice.

Frequently asked questions

Is an S-corp a type of business entity?

No. An S-corp is a federal tax status, not a separate kind of company. You first form an LLC or a corporation under state law, then file IRS Form 2553 to ask to be taxed as an S corporation. The legal entity stays the same; only how its income is taxed changes.

Can an LLC be taxed as an S-corp?

Yes. An LLC is an entity eligible to elect corporate tax treatment, so it can file Form 2553 directly. According to the Form 2553 instructions, an eligible entity that makes a valid S election is treated as a corporation from the effective date and doesn’t need to file Form 8832 separately.

What is the deadline to elect S-corp status?

Form 2553 must be filed no more than 2 months and 15 days after the start of the tax year the election should take effect, or at any time during the previous tax year. For a calendar-year business that already exists, that usually means by March 15. The IRS has relief procedures for late elections with reasonable cause.

Do S-corp owners have to take a salary?

If you work in the business, yes. The IRS says S corporations must pay a shareholder-employee reasonable compensation for their services before taking non-wage distributions, and it can reclassify distributions as wages if the salary is too low.

Who cannot own an S-corp?

An S-corp can have no more than 100 shareholders, and they must generally be US citizens or residents, estates or certain trusts. Partnerships, corporations and nonresident aliens cannot be shareholders, and the company can have only one class of stock (differences in voting rights are allowed).

What does a general partnership cost to start?

Often little in state fees: many states don't require a filing to form a general partnership, though you may need a DBA (assumed name) filing if you trade under a name other than the partners' names. The real costs are a written partnership agreement (about $35 for a template, or typically $500–$2,000 for an attorney-drafted one), a yearly Form 1065 with a K-1 for each partner (NSA survey average $733), and self-employment tax on each partner's share of profit.

What is the biggest risk of a general partnership?

Unlimited personal liability. In a general partnership each partner can generally be personally responsible for the business’s debts and for obligations other partners take on for the business. An LLC, an LLP (for eligible professions in many states) or an LP (for limited partners) adds a liability shield; business insurance can reduce, but not remove, the risk.

Why would a small business choose a C-corp?

Mainly to raise outside investment. Venture investors usually want a C-corp because it can have unlimited shareholders, foreign or corporate owners and preferred stock. Profits kept in the business are taxed at the flat 21% federal corporate rate, but profits paid out as dividends are taxed again to the shareholders.

S-corp tax savings calculatorSee your own break-even and yearly saving LLC cost by stateFormation and yearly fees, with official sources