Which type of corporation is best: LLC, S corp, C corp, etc.
First, an important disclaimer: I am not an accountant. I am not a lawyer.
This is a topic that affects your tax liabilities and your legal status so you need to educate yourself on the basics of this topic as well as discuss this in detail with an accountant regarding the tax implications and an attorney regarding the legal ramifications.
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There are three main types of corporate entities that you will consider as an entrepreneur, all of which provide liability isolation but each with different tax consequences:
- C corporation
- S corporation
- LLC and its variants
The best type of corporation for your business depends on many factors. In a very broad sense, if you are planning to seek outside equity (stockholder) investors to fund your business, then a C corporation will probably be best. A C corporation will be a requirement for any institutional investor and most angel investors. If you are planning a small-scale, lifestyle business and just need some liability protection, an LLC can be very inexpensive to create and maintain, while retaining simple, low-cost tax preparation and accounting costs.