Business Entity Quiz — LLC vs S-Corp vs C-Corp — All
50 States

A sole proprietorship requires no formation — you're automatically a sole proprietor the moment you start doing business under your own name (or a registered DBA). Zero filing cost, zero ongoing compliance, full tax simplicity. The tradeoff: zero liability protection. Your personal assets (house, savings, car) are exposed to business debts and lawsuits. An LLC costs $50–$500 to form (state filing fees vary: Wyoming $100, Delaware $90, California $70 + $800/year minimum franchise tax) and creates a legal barrier between your personal assets and business liabilities. For any business with real liability exposure, an LLC is worth the filing fee.

An S-Corp election makes financial sense when your LLC's net profit consistently exceeds $40,000–$80,000/year. Here's why: by default, LLC owners pay 15.3% self-employment tax (Social Security + Medicare) on all net business income. With an S-Corp election, you take a 'reasonable salary' (subject to payroll taxes) and distribute the remaining profit — which is not subject to self-employment tax. On $100,000 net profit with a $60,000 salary, you save SE tax on the $40,000 difference: roughly $6,120/year. Payroll compliance costs (payroll service, quarterly filings) typically run $500–$2,000/year, so the break-even point matters.

Piercing the corporate veil is a legal doctrine that holds LLC or corporation owners personally liable for business debts — essentially removing the liability protection. Courts pierce the veil when owners: (1) commingle personal and business funds (using the business account for personal expenses or vice versa), (2) fail to maintain business formalities (no separate bank account, no documented decisions), (3) undercapitalize the business (no real funding, essentially a shell), or (4) use the entity for fraudulent purposes. Prevention is straightforward: open a dedicated business bank account, never pay personal expenses from it, document major business decisions, and maintain adequate business insurance.

C-Corps are the right choice in specific situations: (1) you're raising venture capital — VCs and institutional investors strongly prefer C-Corps because they can issue preferred stock with special rights and liquidation preferences (LLCs can't issue preferred equity in the same way); (2) you're planning to go public — the public markets require C-Corp structure; (3) you have international investors — non-U.S. investors cannot hold interests in an S-Corp; (4) you want to issue stock options to employees using ISO (Incentive Stock Option) plans with favorable tax treatment. The C-Corp double-taxation issue (corporate-level tax + shareholder dividend tax) matters less if profits are retained rather than distributed.

State filing fees for LLC formation vary widely: Wyoming — $100 one-time filing, no annual report fee (popular for privacy); Delaware — $90 filing + $300/year franchise tax (popular for venture-backed companies); Nevada — $75 filing + $350/year; Florida — $125 filing + $138.75/year; Texas — $300 filing; California — $70 filing + $800/year minimum franchise tax (expensive for early-stage businesses). Forming in your home state is usually best for single-state operations — a Wyoming or Delaware LLC operating in California still needs to register as a foreign LLC in California ($70 + $800/year), effectively paying fees in both states.