Choosing an Entity Structure for Your New Business

The entity you choose at formation shapes how the business is taxed, how liability flows to the owners, and what the eventual sale or succession looks like. It is one of the earliest decisions a founder makes — and one of the most consequential.

A single-member LLC is the simplest starting point. By default it is a disregarded entity for federal tax purposes, meaning the business's income and expenses report on the owner's personal return. It offers liability protection with minimal administrative burden, which makes it a common first choice for solo operators.

An S-Corporation election changes the picture. Income passes through to the owner's personal return, but the owner can take a portion as salary and the rest as distributions, potentially reducing self-employment tax. The trade-off is payroll obligations and stricter compliance. For many service businesses, the S-Corp election pays for itself once profit is stable.

A C-Corporation is the structure investors usually expect. It creates a separate taxpayer, which means the business income is taxed at the corporate level and again when distributed as dividends. For a business planning to raise outside capital, that double taxation is often worth the access to equity financing and the favorable treatment of qualified small business stock on a future sale.

The good news is that the choice is not permanent. An LLC can elect S-Corp status as income grows, and structures can be converted as the business matures. We help founders choose for the stage they are in — and revisit the choice as the business changes.