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FROM LLC TO CORPORATION

Understanding Business Structures

Choosing the right business structure is one of the most important decisions you’ll make as a business owner. Each structure impacts taxes, liability, control, and separation between you and the business. Before selecting an entity, it’s critical to understand how each one works.

What Is a Pass-Through Entity?

A pass-through entity is a business structure where the business itself does not pay federal income taxes. Instead, profits and losses pass directly to the owner(s) and are reported on their personal tax return.

This means:

  • Your personal name and SSN are tied to the business
  • Business income affects your personal tax liability
  • There is limited separation between you and the business

Common Business Structures

Sole Proprietorship

Pass-Through Entity
  • Owned by one individual
  • No legal separation between owner and business
  • Highest personal liability risk

Single-Member LLC

Pass-Through Entity
  • Owned by one person
  • Taxed the same as a sole proprietorship by default
  • Commonly misunderstood as "fully separate"
  • Personal tax return still reflects business activity

Multi-Member LLC / Partnership

Pass-Through Entity
  • Owned by two or more people
  • Profits and losses pass through to owners
  • Increased complexity, but still limited separation

S-Corporation

Pass-Through Entity
  • A tax election, not a legal structure
  • Income still passes through to owners
  • Requires payroll and strict compliance
The Only Fully Separate Structure

C-Corporation ✓

Not Pass-Through
  • The business is its own legal and tax-paying entity
  • Pays its own federal taxes
  • Can build business credit without using your SSN
  • Provides the highest level of separation and scalability
  • Yes — a C-Corp can be started with ONE person

This is the only structure that truly separates the individual from the business when properly formed and maintained.

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