Should You Incorporate Your Business as an LLC or S Corporation?

DCI-DSA-RRI
May 21
2 min read

Incorporating your business—whether as a Limited Liability Company (LLC) or an S Corporation (S Corp)—can provide significant legal, financial, and tax benefits. But which structure is right for you?

Here’s a breakdown of why incorporation matters and how to choose between an LLC and S Corp based on your goals, income, and growth plans.

Why Incorporate Your Business?

1. Limited Liability Protection

Incorporation separates your personal assets from business liabilities. If your business faces a lawsuit or debt, your home, car, and savings are generally protected.

2. Professional Credibility

Forming a legal business entity boosts your legitimacy with customers, vendors, and lenders. It signals that you’re serious and established.

3. Easier Access to Capital

Banks and investors often prefer to work with incorporated businesses. Structuring your business properly can open the door to loans, grants, or outside investment.

4. Business Continuity

Unlike sole proprietorships, incorporated businesses can continue operating beyond the owner’s involvement. This makes ownership transitions, sales, and succession planning much simpler.

5. Tax Benefits and Deductions

Both LLCs and S Corps offer potential tax advantages, including deductions for health insurance, retirement contributions, and other business expenses.

LLC vs. S Corporation: What's the Difference?

While both options provide liability protection and pass-through taxation, there are important distinctions when it comes to management, taxation, and structure.

Benefits of an LLC

Simple to Set Up and Maintain Fewer formalities, no board of directors, and minimal paperwork.
Flexible Tax Options You can choose to be taxed as a sole proprietorship, partnership, or even as an S Corp (if it makes sense for your tax strategy).
Flexible Profit Distribution LLCs are not required to distribute profits based strictly on ownership percentage.

Benefits of an S Corporation

Tax Savings on Self-Employment Taxes Owners can pay themselves a “reasonable salary” and take additional profits as distributions—those distributions aren't subject to self-employment taxes.
Clear Structure S Corps follow a more formal corporate structure, which can be appealing to investors or for scaling operations.
Pass-Through Taxation Like an LLC, an S Corp avoids double taxation, with profits passing directly to shareholders.

LLC vs. S Corp: Quick Comparison

Feature	LLC	S Corporation
Ownership Rules	No limit on members or types	Up to 100 shareholders, U.S. only
Taxation	All profits subject to self-employment tax	Salary subject to self-employment tax only
Corporate Formalities	Minimal	Requires board meetings and documentation
Profit Distribution	Flexible	Must be proportional to ownership
Stock Issuance	Not allowed	Can issue stock to shareholders

Final Thoughts

Choose an LLC if you want a simple, flexible structure—especially if you're running a small business, side gig, or just starting out.
Choose an S Corporation if your business is generating higher profits and you want to reduce self-employment taxes, and you're comfortable with more compliance requirements.

Still unsure which is right for you? DSA Tax & Bookkeeping helps independent distributors and small business owners choose the best structure for long-term success.