LLC, S corporation or C corporation: choosing an entity
The right structure depends on your plans: staying small and profitable, hiring, raising money, or owning with others. Here is how each one is taxed and what it means in Illinois.
Prepared by Prem Tax and Accounting Corp. Last checked against official sources on October 9, 2026.
The four choices side by side
| Sole proprietor or single-member LLC | S corporation | C corporation | |
|---|---|---|---|
| Taxed as | Owner, on Schedule C | Owners, through Form 1120-S and K-1s | The corporation (21%), then owners on dividends |
| Self-employment tax | On all profit | Only on salary; profit is not subject to it | Only on salary |
| Liability | Sole prop: none. LLC: limited | Limited | Limited |
| Owners | One (LLC may add members) | U.S. individuals and certain trusts, up to 100, one class of stock | Anyone, any number |
| Good for | Getting started, simple businesses | Profitable owner-operators | Raising money, QSBS, stock options |
| Watch-outs | Self-employment tax grows with profit | Reasonable salary, payroll, extra return | Double tax on dividends; more formalities |
How to think about it
- Starting small: a single-member LLC is simple and gives liability protection. Add an S election later when profit justifies it.
- Profitable and working in it: an S election can cut self-employment tax, as long as you pay a reasonable salary. Use the savings calculator.
- Raising venture money or issuing options: a C corporation (often Delaware) is the standard, and QSBS can make a future sale much more tax-efficient.
- Foreign owners: an LLC or C corporation, never an S corporation. See starting a U.S. business from abroad.
- Owning real estate: an S corporation is rarely a good fit. See our real estate guide.
Illinois notes
- Every LLC and corporation must keep an Illinois registered agent.
- The annual report is $75 for an LLC and $75 for a corporation, and corporations also pay a franchise tax based on paid-in capital.
- Illinois taxes S corporations and partnerships on their income at the entity level through the replacement tax, and S corporations and partnerships can elect the pass-through entity tax. See our Illinois guide.
Common questions
Is an LLC taxed differently from a corporation?
An LLC is a legal structure, not a tax class. A single-owner LLC is taxed as a sole proprietorship by default, and a multi-owner LLC as a partnership. Either can elect to be taxed as an S corporation or a C corporation.
Which is best for a startup raising venture capital?
Usually a C corporation, often formed in Delaware, because investors expect it, and because qualified small business stock (QSBS) treatment applies only to C corporation stock. Talk to your attorney and us before issuing shares.
Can a non-U.S. resident own an S corporation?
No. Nonresident aliens cannot be S corporation shareholders. A foreign owner can use an LLC or a C corporation.
Does an LLC protect my personal assets?
It generally limits liability for business debts if you keep it separate: its own bank account, contracts in its name, and no mixing of funds. It does not protect against your own professional errors or personal guarantees. Ask your attorney.
What does it cost to keep an Illinois LLC or corporation in good standing?
An annual report to the Secretary of State ($75 for an LLC, and $75 for a corporation plus franchise tax), a registered agent, and the filings for your tax elections. Fees change, so check the state sites.
Official sources
- IRS Publication 583: Starting a business and keeping records
- IRS: Instructions for Form 2553 (S corporation election)
- Illinois Secretary of State: form an LLC online
- Illinois Secretary of State: corporation annual report
Let's talk about your taxes, your business, your plans.
Tell us what you need and we will get back to you quickly. There is no pressure: just a friendly conversation and a clear next step.
4260 Westbrook Dr, Suite 107
Aurora, IL 60504
Monday to Friday, 9:00 am to 5:00 pm, by appointment. Saturday and Sunday by appointment when needed.