What is a C-Corp, and when does it beat an LLC?

If your project plans to raise capital, bring in partners or hand out equity to its team, sooner or later someone will mention the C-Corp. Here's what you need to know.

What it is

A C-Corp is a corporation: an entity fully separate from its owners, whose ownership is divided into shares. Whoever holds shares is a shareholder, and the percentage they hold defines how much of the company is theirs.

The "C" comes from the chapter of the U.S. tax code it's taxed under by default. It's the structure behind most of the large companies you know.

Why startups pick it

For one very concrete reason: investors invest in shares. A fund or an angel investor knows exactly how to buy a stake in a C-Corp; in an LLC it gets complicated, and many won't even try.

Beyond that, a C-Corp lets you:

• Issue different classes of shares (founders, investors, employees).
• Grant stock options to your team, which is how you compete for talent without paying big salaries.
• Add and remove shareholders without rebuilding the company's structure.

How it differs from an LLC

| | LLC | C-Corp | |---|---|---| | Ownership | Membership interests | Shares | | Management | Flexible, defined by the owners | Board of directors and officers | | Raising capital | Awkward to structure | What it's built for | | Formalities | Few | Minutes, meetings, share records |

In short: the LLC is simpler to maintain; the C-Corp is heavier, but it's the one that holds up under investment and growth.

What maintaining one involves

A C-Corp demands more administrative discipline than an LLC: a board of directors, documented meetings, minutes and a record of who holds which shares. None of it is hard, but it's constant work, and letting it slide causes problems right when an investor shows up to review the paperwork.

You also want to understand how it's taxed before deciding, because a C-Corp files on its own and that changes the final math. That part belongs with an accountant looking at your case.

So, LLC or C-Corp?

The useful question isn't which is better, but what you're going to do with the company:

• If you're going to run a business and live off it, an LLC almost always covers you.
• If you're going to raise money, hand out equity or sell the company someday, the C-Corp is the road.

How we help

We do the paperwork: we prepare and file the formation documents with the state, process the EIN with the IRS, and hand you the formation documents, with everything explained in your language.

We are not a law firm and we do not provide legal advice. We prepare and file forms based on the information you give us; you pick the structure, and questions about taxes or corporate structure belong with an accountant or an attorney.

To see the options side by side, read how to choose your entity type. And if you already know what you want, here's our company formation service.