A number of factors should be considered when choosing the right business entity: how long do you plan to keep the business? Do you intend to raise outside capital? Are there multiple owners? Are your finances and assets complicated or simple? It is advisable to seek professional advice from a tax or accounting advisor before deciding on a legal structure.

All in all, both corporations and limited liability companies are viable options for small businesses. In fact, many small businesses choose both structures. For example, if you plan on expanding your business in the future, an LLC may make sense because the company can easily convert into a C corporation later on without having to go through the process of filing articles of incorporation with your state government.

As a general rule, if you plan to raise capital from outside investors or you plan on hiring employees, the LLC is probably the better option. If not, an S Corporation is likely your best bet due to its ability to pass the much lower self-employment tax onto your personal income taxes.