California
Entity Comparison
The most comprehensive comparison of LLCs, Corporations, S-Corps, and Professional Corporations. Based on 20 years of formation experience and 5,000+ successful entities.
Select Entities to Compare
Click to toggle entities in the comparison table below
LLC
Best for: Most small businesses
- Maximum flexibility in management structure
- Pass-through taxation avoids double taxation
- Fewer formalities and compliance requirements
- Can elect S-Corp tax treatment when profitable
C-Corporation
Best for: Venture-backed startups
- Unlimited shareholders and share classes
- Preferred by VCs and institutional investors
- Can issue stock options to employees
- IPO eligible when ready to go public
S-Corporation
Best for: Profitable service businesses
- Pass-through taxation with payroll tax savings
- No self-employment tax on distributions
- 100 shareholder maximum
- Single class of stock requirement
Professional Corp
Best for: Licensed professionals
- Required for doctors, lawyers, CPAs, etc.
- Professional liability protection
- Board-specific compliance requirements
- Can elect S-Corp tax treatment
Complete Entity Comparison
All critical factors for your business decision
| Feature / Requirement |
LLC
$2,995 with LawInc
|
C-Corporation
$2,995 with LawInc
|
S-Corporation
$2,995 with LawInc
|
Professional Corp
$3,995 with LawInc
|
|---|---|---|---|---|
| Formation & Setup | ||||
| California State Filing Fee | $75 | $105 | $105 | $105 |
| Formation Complexity | Simple | Moderate | Complex (IRS election) | Complex (board approval) |
| Time to Form | 1-3 days | 1-3 days | 5-7 days | 7-10 days |
| Operating Agreement/Bylaws | Recommended | Required | Required | Required |
| Initial Statement of Information | Within 90 days ($20) | Within 90 days ($25) | Within 90 days ($25) | Within 90 days ($25) |
| Taxation | ||||
| Federal Tax Treatment | Pass-through | Double taxation (21% + personal) | Pass-through | C-Corp or S-Corp election |
| Self-Employment Tax (15.3%) | Yes (on all profits) | No | No (only on W-2 wages) | Varies by election |
| CA Franchise Tax (minimum) | $800/year | $800/year | $800/year or 1.5% (greater) | $800/year or 1.5% (greater) |
| CA LLC Gross Receipts Tax | $900-$11,790 (based on revenue) | None | None | None |
| Owner Compensation | Distributions (1099) | W-2 wages + dividends | W-2 wages + distributions | W-2 wages |
| QBI Deduction (20%) | Yes | No | Yes (limited) | Varies |
| Ownership & Control | ||||
| Ownership Restrictions | None | None | US citizens/residents only | Licensed professionals only |
| Number of Owners | Unlimited | Unlimited | 100 maximum | Varies by profession |
| Classes of Ownership | Multiple allowed | Multiple allowed | One class only | Restricted |
| Transfer of Ownership | Subject to operating agreement | Freely transferable | Some restrictions | Heavily restricted |
| Foreign Ownership | Allowed | Allowed | Prohibited | Prohibited |
| Liability Protection | ||||
| Personal Asset Protection | ✓ | ✓ | ✓ | ✓ |
| Veil Piercing Risk | Moderate (fewer formalities) | Low (established case law) | Low | Low |
| Professional Malpractice Shield | ✗ | ✗ | ✗ | Partial |
| Operations & Management | ||||
| Annual Meeting Required | ✗ | ✓ | ✓ | ✓ |
| Board of Directors Required | ✗ | ✓ | ✓ | ✓ |
| Corporate Minutes Required | ✗ | ✓ | ✓ | ✓ |
| Officers Required | ✗ | ✓ (CEO, Secretary, CFO) | ✓ (CEO, Secretary, CFO) | ✓ (Licensed professionals) |
| Annual Compliance | ||||
| Statement of Information | Biennial ($20) | Annual ($25) | Annual ($25) | Annual ($25) |
| Registered Agent | Required ($125-500/year) | Required ($125-500/year) | Required ($125-500/year) | Required ($125-500/year) |
| Business License | By city/county | By city/county | By city/county | By city/county + professional |
| Annual Tax Returns | Form 568 | Form 100 | Form 100S + 1120S | Form 100 or 100S |
| Growth & Investment | ||||
| VC/Angel Investment | Difficult (must convert) | Preferred | Not suitable | Limited |
| Stock Options for Employees | Profit interests only | ✓ | ✓ | Limited |
| IPO Eligible | ✗ | ✓ | Must convert to C-Corp | ✗ |
| Exit Strategy Options | Asset sale preferred | Stock or asset sale | Stock or asset sale | Limited options |
Critical Decision Factors
Key insights from 20 years of entity formation experience
The $60,000 S-Corp Rule
Once your net profit exceeds $60,000, S-Corporation election typically saves enough in payroll taxes (15.3% on distributions) to offset the additional compliance costs. Below this threshold, an LLC is usually more cost-effective.
VC Funding Requires C-Corp
99% of venture capital firms require a Delaware C-Corporation. If you’re planning to raise institutional money, start with a C-Corp or budget $15,000-$25,000 for conversion costs later.
LLC Gross Receipts Tax
California LLCs pay an additional gross receipts tax on top of the $800 minimum: $900 (revenue $250K-$500K), $2,500 ($500K-$1M), $6,000 ($1M-$5M), or $11,790 ($5M+). Corporations don’t pay this tax.
Professional Corp Mandate
California law requires Professional Corporations for doctors, lawyers, CPAs, architects, and other licensed professionals. Using the wrong entity type can result in personal liability and board sanctions.
Compliance Time Cost
LLCs require 3-5 hours annually for compliance. Corporations require 15-20 hours for meetings, minutes, and filings. Factor this time cost (or professional fees) into your decision.
The Safe Default
When uncertain, start with an LLC. You can elect S-Corp tax treatment when profitable or convert to a corporation for investors. Starting wrong and converting costs thousands in legal and tax fees.
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