Tax
S-corp vs C-corp vs LLC
Quick definition
S-corps and LLCs pass income through to owners' personal returns (single layer of tax). C-corps pay corporate tax, then shareholders pay tax on dividends (double tax).
C-corps face double taxation (corporate income tax + shareholder dividend/cap-gains tax) but offer unlimited shareholders, multiple share classes, and §1202 QSBS eligibility, all required for VC-backed startups. S-corps offer pass-through taxation but are limited to 100 US-resident shareholders, one class of stock, and no §1202, making them incompatible with venture funding. LLCs are flexible (default partnership taxation or election to be taxed as S-corp or C-corp) but most VC-backed startups convert to C-corp Delaware at first institutional financing.
Frequently asked questions
- What is S-corp vs C-corp vs LLC?
- C-corps face double taxation (corporate income tax + shareholder dividend/cap-gains tax) but offer unlimited shareholders, multiple share classes, and §1202 QSBS eligibility, all required for VC-backed startups. S-corps offer pass-through taxation but are limited to 100 US-resident shareholders, one class of stock, and no §1202, making them incompatible with venture funding. LLCs are flexible (default partnership taxation or election to be taxed as S-corp or C-corp) but most VC-backed startups convert to C-corp Delaware at first institutional financing.
- Why is S-corp vs C-corp vs LLC important for startups?
- S-corp vs C-corp vs LLC is a tax concept that matters for startup founders because it shows up in fundraising readiness, financial decision-making, and operational discipline at the stage where mistakes are expensive to undo. Founders who understand it are better prepared for diligence, board meetings, and investor conversations.
- What category does S-corp vs C-corp vs LLC belong to?
- S-corp vs C-corp vs LLC is a Tax term in the StartupCFO finance glossary, alongside other tax concepts that founders, CFOs, and accountants use in startup operations and reporting.
- Where can I learn more about S-corp vs C-corp vs LLC?
- Beyond this definition, see the related tax terms below, or explore StartupCFO's insights and tools that put S-corp vs C-corp vs LLC in context. For specific situations, talk to a fractional CFO who can walk through your numbers.
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