You are asking about the difference between C-Corp and LLC in the US. Really, your options are:
(a) LLC
(b) S-Corp
(c) C-Corp
The rules, AFAIK but IANAL:
- Sole proprietorship (single person) can file taxes for an entity with TIN as LLC, S-Corp, or C-Corp
- S-Corp can elect to file as a C-Corp at any time
- C-Corp can issue multiple classes of shares; S-Corp cannot
- Easy to convert from an S-Corp to a C-Corp
- Difficult to convert from a C-Corp to an S-Corp
- LLC has lowest setup cost
- C-Corp requires you to pay double taxes on some income.
- LLC and S-Corp taxation effectively identical
In my opinion it makes sense to incorporate an LLC, then decide between filing taxes as LLC or S-Corp at the end of the first tax year. If at any time you want to raise investment, file the requisite paperwork to convert the S-Corp into a C-Corp.
Theoretically the big difference between an S-Corp and an LLC is that an owner/member/principal of an LLC can't simultaneously be an "employee", and so must be paid by profit sharing distributions rather than W2, which can be inconvenient.
But as you point out, most LLCs can file taxes as S-Corps, which gets rid of the major difference.
Fun fact: LLCs can also have multiple share classes.
(a) LLC
(b) S-Corp
(c) C-Corp
The rules, AFAIK but IANAL:
- Sole proprietorship (single person) can file taxes for an entity with TIN as LLC, S-Corp, or C-Corp
- S-Corp can elect to file as a C-Corp at any time
- C-Corp can issue multiple classes of shares; S-Corp cannot
- Easy to convert from an S-Corp to a C-Corp
- Difficult to convert from a C-Corp to an S-Corp
- LLC has lowest setup cost
- C-Corp requires you to pay double taxes on some income.
- LLC and S-Corp taxation effectively identical
In my opinion it makes sense to incorporate an LLC, then decide between filing taxes as LLC or S-Corp at the end of the first tax year. If at any time you want to raise investment, file the requisite paperwork to convert the S-Corp into a C-Corp.