What is the difference between a corporation and an LLC?

An LLC (Limited Liability Company) is a flexible business structure that combines liability protection with pass-through taxation — profits flow to members' personal tax returns without corporate-level tax. A corporation is a separate legal entity that can have unlimited shareholders, issue stock, and (as a C corporation) is taxed at the corporate rate. S corporations elect pass-through taxation but have ownership restrictions. LLCs are simpler to manage; corporations are preferred for venture-backed startups or companies planning to go public.

Is an LLC or corporation better for taxes?

LLCs taxed as pass-through entities avoid double taxation — members pay personal income tax on their share of profits. C corporations are taxed twice: once at the corporate rate (21% federal) and again when dividends are paid to shareholders. However, LLCs can elect S corporation taxation to reduce self-employment taxes. For most small businesses, LLC (or LLC taxed as S corp) is more tax-efficient. For venture-backed startups, a C corporation is typically required by investors.

How much does it cost to form a corporation vs an LLC?

Corporation and LLC filing fees are often similar at the state level. In Florida, LLC formation costs $125 vs. $70 for a corporation. In Delaware, both cost $110 to file. In Texas, both cost $300. However, corporations generally have higher ongoing compliance costs due to required annual shareholder meetings, board resolutions, and stricter record-keeping requirements.

Should I form an LLC or corporation for my startup?

If you plan to raise venture capital, form a Delaware C corporation — VCs strongly prefer (and often require) the C corp structure for investment. If you're bootstrapping and want simplicity and tax efficiency, an LLC is usually better. LLCs cannot issue preferred stock (the investment instrument VCs use), which is why VC-backed startups almost universally incorporate as C corporations in Delaware.

Can an LLC be converted to a corporation?

Yes, most states allow LLC-to-corporation conversion through a statutory conversion or merger process. This is a common path for startups: form as an LLC initially, then convert to a Delaware C corporation before a fundraising round. The conversion can have tax implications, so consult a tax attorney before proceeding.

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Corporation vs LLC in 2026: State Filing Fees, Taxes, and When to Choose Each

Published June 19, 2026•10 min read•By Corporate.AI Research Team

Choosing between a corporation and an LLC is one of the most important decisions a business founder makes. The right answer depends on how you plan to raise money, how you want to be taxed, and how much administrative complexity you can handle. This guide cuts through the noise with specific numbers, state-by-state comparisons, and clear decision rules.

Quick Answer: LLC vs Corporation

Choose an LLC if:

Bootstrapping or self-funding
Want simpler management structure
Want pass-through taxation by default
Running a service business or real estate venture
Small team, no outside investors

Choose a Corporation (C Corp) if:

Raising venture capital or angel funding
Plan to issue equity to employees (stock options)
Targeting IPO or acquisition
Need to issue preferred stock
Building a Delaware-incorporated tech company

1. Key Differences at a Glance

Feature	LLC	C Corporation	S Corporation
Owners called	Members	Shareholders	Shareholders
Ownership units	Membership interests	Stock shares	Stock shares (max 100)
Max owners	Unlimited	Unlimited	100 shareholders max
Foreign owners allowed	Yes	Yes	No
Default taxation	Pass-through	Corporate (21% federal)	Pass-through
Double taxation	No	Yes (C corp)	No
Self-employment tax	Yes (on profits)	No (salary + dividends)	Reduced (salary only)
VC investment compatible	No (usually)	Yes	No
Stock options (ISOs)	No	Yes	Limited
Formal meetings required	No (in most states)	Yes (board + annual)	Yes (board + annual)
Operating agreement/bylaws	Operating Agreement	Bylaws + Board Resolutions	Bylaws + Board Resolutions
Annual report required	Most states	Most states	Most states

2. State Filing Fee Comparison: Corporation vs LLC

In most states, the cost to form a corporation and an LLC are similar or identical. The ongoing compliance costs for corporations are typically higher due to required board meetings, annual meeting minutes, and stricter record-keeping. Here are filing fees for the states with the most business activity:

State	LLC Filing Fee	Corp Filing Fee	LLC Annual Fee	Corp Annual Fee
California	$70	$100	$800 (min)	$800 (min)
Colorado	$50	$50	$10	$10
Delaware	$110	$110	$300 (min)	$400 (min)
Florida	$125	$70	$138.75	$138.75
Georgia	$100	$100	$50	$50
Illinois	$150	$150	$75	$75
Nevada	$75	$75	$350	$650
New York	$200	$125	$9+	$9+
Ohio	$99	$99	$0	$0
Oregon	$100	$100	$100	$100
Texas	$300	$300	$0*	$0*
Washington	$230	$230	$60	$60
Wyoming	$100	$100	$52	$52

* Texas LLCs/corps with gross receipts under $2.47M pay no franchise tax. Fees verified June 2026.

Key insight: Nevada charges corporations significantly more in annual fees ($650) than LLCs ($350), making the LLC structure even more cost-effective for Nevada-based businesses. Delaware's corporation annual fees (minimum $400) are higher than its LLC fees (minimum $300), though Delaware remains the most popular state for incorporation due to its established corporate law.

3. Tax Comparison: LLC vs C Corp vs S Corp

Tax treatment is often the most important factor in the LLC vs corporation decision.

LLC (Default: Pass-Through Taxation)

By default, a single-member LLC is treated as a "disregarded entity" (sole proprietorship for taxes), and a multi-member LLC is treated as a partnership. Profits flow directly to members' personal tax returns — no corporate-level tax.

Example: LLC with $200,000 net profit, two equal members

Each member receives $100,000 of pass-through income
Each pays self-employment tax: 15.3% on first $168,600 (2026) = ~$15,300
Each pays personal income tax on the $100,000 at their marginal rate
No corporate-level federal income tax

LLC Taxed as S Corporation

LLCs can elect S corporation taxation by filing IRS Form 2553. This allows owner-employees to split income between a "reasonable salary" (subject to payroll taxes) and a "distribution" (not subject to self-employment tax). This election typically makes sense when net profit exceeds $50,000–$70,000.

Example: LLC (S corp election) with $200,000 net profit, single member

Owner pays themselves a reasonable salary: $80,000
Payroll taxes on $80,000 salary: ~$12,240 (employee + employer split)
Remaining $120,000 flows as a distribution — no self-employment tax
Potential savings vs. default LLC: ~$8,000–$12,000/year

C Corporation

C corporations pay federal corporate income tax at a flat 21% rate on profits. When the corporation distributes dividends to shareholders, those dividends are taxed again on the shareholders' personal returns (qualified dividends at 0%, 15%, or 20%). This is "double taxation."

Example: C Corp with $200,000 net profit

Corporate income tax: $200,000 × 21% = $42,000
After-tax profit available for distribution: $158,000
If distributed as dividends: additional 15%–20% personal tax on $158,000
Total effective tax rate: 32%–37%
BUT: Retained earnings inside the C corp can be reinvested at just the 21% corporate rate

Why VCs prefer C corps: Most VC investors are tax-exempt entities (pension funds, endowments) or non-U.S. investors who cannot participate in S corporations. They also prefer the clean capital structure (common + preferred shares) that corporations provide.

4. Management Structure & Compliance Burden

LLC Compliance Requirements

✅ Draft operating agreement (not filed, but essential)
✅ Annual report or statement of information (most states)
✅ Maintain a registered agent
✅ Keep business and personal finances separate
❌ No required board meetings
❌ No required annual shareholder meetings
❌ No required meeting minutes
❌ No required board resolutions for decisions

Corporation Compliance Requirements

✅ File Articles of Incorporation + bylaws
✅ Annual report (most states)
✅ Maintain a registered agent
✅ Keep business and personal finances separate
✅ Annual board of directors meeting required
✅ Annual shareholder meeting required
✅ Board meeting minutes required
✅ Board resolutions required for major decisions
✅ Issue stock certificates
✅ Maintain stock ledger

The administrative burden difference is real but manageable. For a Delaware C corporation startup, expect to spend $500–$2,000/year on a registered agent, Delaware franchise tax, and an attorney to prepare annual consent resolutions. Many startup-focused law firms like Clerky or Stripe Atlas streamline this process for $500–$1,000/year.

5. State-Specific Examples Using Registry Data

Corporate.AI indexes 27.5 million+ business entity registrations across 10 states, including both LLCs and corporations. Here's what the data shows about business structure preferences by state:

Florida: LLCs Dominate Small Business

Florida's business registry shows LLCs significantly outnumber corporations for small and mid-sized businesses — consistent with national trends. Florida LLC filing costs $125 vs. $70 for a corporation (Articles of Incorporation), making corporations marginally cheaper to form but the same cost annually ($138.75 annual report for both).

For Florida-based service businesses — consultants, real estate investors, contractors — the LLC structure is almost universally preferred. Browse Florida business registrations →

Delaware: The Corporation Capital

Delaware hosts over 1.8 million business entities — more than any other state relative to its size — because of its Court of Chancery (specialized business court with no juries), flexible corporate law, and the fact that corporations do not pay Delaware income tax on out-of-state activity.

More than 65% of Fortune 500 companies are incorporated in Delaware. For startups raising venture capital, forming a Delaware C corporation is essentially the industry standard. Browse Delaware business registrations →

Texas: Both Structures Thrive

Texas has the same $300 filing fee for both LLCs and corporations. Texas's no-personal-income-tax environment benefits both structures' owners. The franchise tax exemption (under $2.47M revenue) means most small Texas businesses pay no annual franchise tax regardless of entity type.

Browse Texas business registrations →

6. Decision Framework: When to Choose Each

Choose an LLC When:

You're bootstrapping: No immediate plans for outside equity investment. The LLC's pass-through taxation and simpler management suit solo founders and small partnerships.
Real estate investments: LLCs are the gold standard for holding real estate. Separate LLCs for each property isolate liability, and pass-through taxation avoids double taxation on rental income.
Professional services: Consultants, freelancers, contractors, agencies — the LLC's flexibility and tax efficiency (especially with S corp election) is typically optimal.
Family businesses: Operating agreements can be customized to reflect family ownership arrangements without the rigid corporate governance requirements.
When you might sell the business (asset sale): LLC structures often provide more favorable tax treatment in asset sales vs. stock sales.

Choose a C Corporation When:

Raising venture capital: VCs require C corporations to participate in preferred stock rounds. A Delaware C corp with standard SAFEs or Series A terms is the expected structure.
Issuing employee stock options (ISOs): Incentive Stock Options are only available to C corporation employees, not LLC members.
Planning to go public (IPO): Public companies are corporations, not LLCs. A Delaware C corp from day one avoids the conversion process and associated costs.
Angel investment via YC, AngelList, etc.: Most accelerator programs and angel syndicates use SAFE agreements, which require C corp status.
Targeting acquisition by a public company: Acqui-hires and stock-for-stock mergers are cleaner with a corporation structure.

Choose an S Corporation When:

You're already incorporated but want tax efficiency: Existing C corps or LLCs can elect S corp status if they meet the eligibility requirements (under 100 shareholders, U.S. citizens/residents only, one class of stock).
High W-2 income with business profits over ~$50,000: The self-employment tax savings from splitting income between salary and distributions can be significant.
Not planning VC funding: S corps can't have VC investors (who are often pass-through entities or foreign nationals). If funding is not a goal, S corps can be highly tax-efficient.

7. Frequently Asked Questions

Can an LLC be taxed as a corporation?

Yes. An LLC can elect to be taxed as a C corporation (Form 8832) or an S corporation (Form 2553). This is a tax election only — the entity remains an LLC for legal purposes. The S corp election is the most common for small business tax optimization.

Is a sole proprietor better off as an LLC or corporation?

An LLC is almost always the better choice for sole proprietors over a corporation. The LLC provides liability protection without the complex governance requirements. When profits exceed $50,000–$70,000, the LLC with S corp election is typically the most tax-efficient structure for a sole operator.

What state is best to incorporate in?

Delaware is the default answer for corporations (especially VC-backed startups) due to its established corporate law, Chancery Court, and investor familiarity. Wyoming and Nevada are popular for LLCs due to strong liability protection and privacy provisions. However, for businesses that operate entirely in one state, forming in the home state often makes more sense to avoid foreign qualification fees.

Can a corporation have just one owner?

Yes. A corporation can have a single shareholder, director, and officer — all the same person. Single-owner corporations are common for solo professionals. The S corporation, in particular, is frequently used by single-owner businesses for tax efficiency.

Research Business Registrations on Corporate.AI

Before choosing your entity type or state, see how competitors and industry leaders are structured. Corporate.AI indexes 27.5M+ U.S. business entities with registration status, officers, and filing history.

Search Business Registrations Browse by State