For most small, owner-run businesses, a limited liability company (LLC) is the simpler choice: it offers liability protection, flexible taxation, and lighter paperwork. A corporation often makes more sense if you plan to raise outside investment, issue stock to employees, or eventually sell to institutional buyers. The right answer in the LLC vs. corporation question depends on your goals, your tax picture, and your state.

What is the difference between an LLC and a corporation?

An LLC and a corporation are both separate legal entities that can shield owners from the business’s debts, but they are built differently. An LLC is a flexible entity governed mostly by a private contract among its owners (called “members”). A corporation follows a more formal structure of shareholders, a board of directors, and officers, with rules set largely by state corporate law.

That difference in structure drives almost everything else: how each is taxed by default, how much paperwork it requires, and how easily it can bring in investors.

Which gives better liability protection, an LLC or a corporation?

Both an LLC and a corporation generally protect owners’ personal assets from business debts and lawsuits, and neither is automatically stronger. In either case, owners can still be personally responsible for their own wrongful acts, for debts they personally guarantee (such as many bank loans and commercial leases), and, in limited cases, when a court “pierces the veil.”

Veil piercing means a court disregards the entity and holds owners personally liable, usually where the business was used to commit fraud or was not treated as truly separate. Keeping separate bank accounts, signing contracts in the company’s name, and documenting major decisions can help preserve the protection. Texas, for example, applies the same statutory limits on veil piercing to LLCs that it applies to corporations (Tex. Bus. Orgs. Code § 101.002).

How are LLCs and corporations taxed?

By default, an LLC is a “pass-through” entity: a single-member LLC is disregarded for federal income tax purposes, and a multi-member LLC is taxed as a partnership, so profits flow to the owners’ personal returns. A corporation is taxed as a “C corporation” by default, paying federal income tax at a flat 21% rate (26 U.S.C. § 11(b)), with shareholders taxed again on dividends.

Either entity can change that default:

• An LLC can elect to be taxed as a corporation by filing IRS Form 8832, or as an S corporation.

• An S corporation election (IRS Form 2553) lets an eligible corporation, or an LLC taxed as a corporation, pass income through to owners. To qualify, the business must be domestic, have no more than 100 shareholders, have only one class of stock, and have only eligible shareholders (generally individuals, certain trusts, and estates, but not partnerships, corporations, or nonresident aliens).

Tax choices can meaningfully affect what you pay, including self-employment and payroll taxes. We recommend involving a CPA or tax advisor before you file an election.

Which requires more paperwork?

A corporation generally requires more formalities than an LLC. Corporations typically adopt bylaws, elect directors, hold (or document by written consent) annual shareholder and board actions, issue stock, and keep minutes. LLCs can usually run on a single operating agreement with fewer mandatory meetings.

Both still have ongoing state filings, covered below. For more, see: Why Your LLC Needs an Operating Agreement — Even If You’re the Only Owner.

Which is better if I want to raise money from investors?

A corporation is usually better suited to raising outside capital. Venture investors commonly expect a corporation with preferred stock, and stock options for employees are built around the corporate form. An S corporation is more limited here, because its single class of stock and shareholder restrictions can rule out many investors.

An LLC can still take on investors and offers great flexibility in dividing profits and control, but its custom agreements can be harder for outside investors to evaluate.

LLC vs. corporation at a glance

How does this work in Maryland, D.C., and Texas?

State filing fees and ongoing requirements differ, and they can change. The figures below come from official state sources as of the date above; confirm current amounts before filing.

Maryland

• Formation: Articles of Organization for an LLC cost $100 to file with the State Department of Assessments and Taxation (SDAT). Articles of Incorporation for a stock corporation cost $100 plus a $20 organization and capitalization fee. Expedited service is an extra $50.

• Annual filing: Both LLCs and corporations file an Annual Report and Business Personal Property Return with SDAT, due April 15, with a $300 filing fee. Businesses owning, leasing, or using Maryland personal property (including inventory) with a total original cost of $20,000 or more must also complete the personal property sections. Late filing can bring penalties.

Washington, D.C.

• Formation: The Department of Licensing and Consumer Protection (DLCP) charges $99 to file a Certificate of Organization for a domestic LLC. Articles of Incorporation for a domestic business corporation start at $99, with higher fees for larger authorized capital.

• Ongoing filing: Both entity types file a biennial (every two years) report, with a $300 fee and a $100 late fee.

• Franchise taxes: D.C. taxes corporations under the corporate franchise tax and many LLCs and partnerships under the unincorporated business franchise tax. Both currently carry an 8.25% rate, with a minimum tax of $250 if D.C. gross receipts are $1 million or less, or $1,000 if above. Unincorporated businesses with gross receipts of $12,000 or less generally do not need to file, and certain professional service businesses may be exempt. This is a key difference from most states: in D.C., choosing an LLC does not necessarily avoid an entity-level tax.

Texas

• Formation: The Texas Secretary of State charges $300 to file a Certificate of Formation for either an LLC or a for-profit corporation.

• No personal income tax: Texas does not impose a personal income tax, but both LLCs and corporations are generally subject to the Texas franchise tax.

• Franchise tax: For 2026 and 2027 reports, entities with annualized total revenue at or below $2,650,000 owe no franchise tax and are not required to file a franchise tax report, but they must still file a Public Information Report (PIR) or Ownership Information Report (OIR). Reports are generally due May 15. Above the threshold, rates are 0.375% for qualifying retail and wholesale businesses and 0.75% for most others, applied to a “margin” calculation.

Do I still need to file a beneficial ownership report with FinCEN?

No, not if your company was formed in the United States. Under a final rule issued August 11, 2026 and effective August 14, 2026, FinCEN permanently exempted U.S.-created companies and U.S. persons from beneficial ownership information reporting under the Corporate Transparency Act. Foreign companies registered to do business in a U.S. state may still have to report.

Frequently asked questions

Can I switch from an LLC to a corporation later?

Yes, in most cases. An LLC can often convert to a corporation under state law, or elect corporate tax treatment without changing its legal form. Conversions can have tax consequences, so they are worth planning with your CPA.

Is an S corporation a type of business entity?

Not exactly. “S corporation” is a federal tax status, not a separate kind of state entity. An eligible corporation or LLC becomes an S corporation by filing an election with the IRS.

Should my rental property be in an LLC?

Many property owners use an LLC to hold real estate, but lender requirements, insurance, transfer taxes, and existing mortgages can affect whether and how to do it. It is worth reviewing before you deed property into a company.

What happens to my business if I die?

That depends on your governing documents and your estate plan. Naming who inherits or manages your ownership interest can keep the business running. For more, see: Will vs. Living Trust: Which One Makes Sense for Your Family?

Talk it through with us

Choosing a structure is one of the first real decisions a business owner makes, and it is easier with someone who can look at your goals, your state, and your tax advisor’s input together. Our small business and real estate services are designed to be clear and fast, and many matters can be handled remotely. For flat fees over $1,500, fotoFlex lets you pay the fee in 3 monthly payments, with no interest and no fees.

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This article is general information, not legal advice. Reading it does not create an attorney-client relationship.