Each form of entity has its pros and cons, and the right organization depends on the nature of your business. If you are worried about risk, both an LLC and a Corporation provide owners with limited personal liability from debts and judgments. Taxation is a significant difference between LLC and Corporation. Corporations and their shareholders are subject to 'double taxation' -- that is, both the corporation and its shareholders are taxed. LLCs avoided this double taxation by passing through tax liabilities to the owners. For most small businesses, LLC is preferred because it provides limited liability protection and avoids double taxation. However, there are cases where a Corporation would be preferred. For example, if you expect to have multiple investors in your business that aren't involved in the business' day-to-day operation (as is typical with LLCs), or if you plan to go public. Also, if you'd like to offer employees stock options and offer fringe benefits to owners, a Corporate may be the most appropriate option for you. LLCs cannot issue stock, for example, only Corporations can. You may also consider forming an S-Corporation. An S-Corp is a Corporation that has elected to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code. Being taxed as an S-Corp avoids 'double taxation.' The S-Corp election enables shareholders to treat earnings and profits as distributions and have them pass through directly to their personal tax returns. The major difference between an LLC and S-Corp is the self-employment tax paid on earnings. The owner of an LLC is considered to be self-employed, and must pay the self-employment tax on the business' total net income. In an S-Corp, only the salary paid to the owner is subject to employment tax. So, owners may actually pay lower taxes in an S-Corp than an LLC. For example, suppose you own and LLC and make $100K. You would have to pay $15,300 in self-employment taxes (15.3% of $100K). If you were an S-Corp, you have to pay yourself a 'reasonable salary' that's on parwith others in your industry doing your job. Suppose this salary is $60K. So, you would only pay $9,180 in self-employment taxes. Of ourse, there is a catch or two. The IRS does not allow S-Corps to manipulate salaries to such a low-level that would allow one to increase the 'non-taxable' distributions. If you do this, the IRS will classify all distributions as salary. In addition, with an S-Corp you have to submit payroll taxes throughout the year, where an with an LLCyou pay taxes once a year on April 15th. For more information, I recommend visiting the following sites: Business Incorporation Guide Business Structures (IRS Overview) Choosing a Business Structure (IRS) I highly recommend you discuss these options with your CPA or attorney ... s/he can give you proper legal advice for your specific circumstances. Message Edited by BobK on 03-25-2009 07:49 AM