Question:
I’m starting a small business and keep hearing about LLCs and S-Corps.
I don’t really understand the difference. Which one should I choose?
A: Great question! This is one of the most common decisions new business owners face — and it can have lasting implications. Ownership, liability, management control and taxation are just a few of the key considerations when selecting and optimizing legal structure.
- LLC (Limited Liability Company). For many new businesses — growing, not yet showing a profit — it makes sense to start as an LLC. It offers personal liability protection, flexible management and lets you choose how you’re taxed — typically as a “pass-through” entity where income is reported on your personal tax return. In Oregon, you’ll need to file articles of organization with the secretary of state.
- S-Corporation (S-Corp) An S-Corp is a tax election, not a separate legal structure. You can elect S-Corp status from an LLC or corporation. It offers the same liability protection, but with added rules: You must pay yourself a reasonable salary, run payroll and file extra tax forms. The tradeoff? Potential savings on self-employment taxes since income can be split between salary and distributions.
- So which one is better? LLCs are great for simplicity and flexibility. S-Corps may save you money once your business is profitable — if you’re ready for more paperwork. For a side-by-side comparison chart, visit sos.oregon.gov/business and search for “Oregon Start a Business Guide.”
For additional advice, consult:
- A certified public accountant
- An attorney
- A COCC Small Business Development Center adviser
Central Oregon Community College’s Small Business Development Center offers free, confidential professional business advising and a variety of low-cost courses to help entrepreneurs through the business lifecycle. Visit cocc.edu/sbdc to learn more and read testimonials from successful businesses.
About the Expert:
Kathryn Brown is the Early Child Care Program manager at COCC’s Small Business Development Center. She was named a 40 under 40 Trailblazer by America’s Small Business Development Center Network in 2023.
