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 — 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 — 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.
Related tax terms
R&D Tax Credit
Federal credit for qualified research expenses, usable against payroll tax by startups.
Delaware Franchise Tax
Annual tax for Delaware corporations, often quoted wildly too high if calculated incorrectly.
Nexus (Sales Tax)
The connection with a state that triggers a tax-collection obligation.
QSBS (Qualified Small Business Stock)
Tax exemption for gains on qualifying startup stock held 5+ years.
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 — 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 — 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 directly affects fundraising readiness, financial decision-making, or operational discipline at the stage where mistakes are expensive to undo. Founders who understand it have a meaningfully easier time in 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 daily 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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