LLC vs C-Corp vs S-Corp
How LLC, C-corporation, and S-corporation treatment differ for family holdings and operating companies.
Key facts
- For federal income tax, a domestic single-member LLC is disregarded by default and a domestic LLC with two or more members is a partnership by default; either may elect corporate classification.
- Financing requirements depend on the investor documents; Delaware law permits multiple classes and series of stock with differing preferences and rights.
- An S-Corp is a tax election, not a formation type — the entity is still an LLC or corporation that elects S status with the IRS when eligible.
Family office and estate holding
Under Delaware law, LLC members may include individuals, trusts, and other entities, and the LLC agreement may set voting, distribution, and transfer rules.
Titling assets to the LLC transfers those assets subject to required documents and approvals. Assigning an LLC interest to a trust may transfer only economic rights unless the agreement and applicable law also admit the assignee as a member.
Startups and operating companies
Financing documents or investor requirements may call for a corporation. Delaware law permits multiple classes and series of stock with differing preferences and rights, but entity choice still depends on financing, tax, and state-law considerations.
A bootstrapped lifestyle business or local operating company may still prefer an LLC for simplicity. Switching later is possible but can be expensive and messy — choose with the next three to five years in mind, not just this weekend's filing fee.
S-Corp elections
"S-Corp" usually means an eligible LLC or corporation elects pass-through taxation under Subchapter S. Eligibility rules (shareholder count and type, one class of stock, domestic entity) are strict. Do not elect S status without a CPA who knows your facts — this article is general information, not tax advice.
References
- IRS — S Corporations
- IRS — Limited Liability Company (LLC)
- Delaware Division of Corporations — About the Division
- Delaware Code, Title 8, § 151 — Classes and series of stock
- U.S. Code — 26 U.S.C. § 1361 — S corporation requirements
- Delaware Code, Title 6, § 18-101 — LLC agreement and person definitions
- Delaware Code, Title 6, § 18-302 — Voting rights
- Delaware Code, Title 6, § 18-504 — Distributions
- Delaware Code, Title 6, §§ 18-702 and 18-704 — Assignment and member admission
This guide is educational only and is not legal, tax, or investment advice. Laws vary by state and change over time; confirm current figures with the linked primary sources or a licensed professional in your state.
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The practical sequence from name clearance through bank account — the same steps Elephant tracks in the entity checklist.
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