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Starting out

DBA, sole prop, LLC, S corp, C corp — what the difference actually is

Almost every page that explains this is published by a company that wants to sell you the filing. We do not sell anything, so here is the version without the sales pitch.

Two business partners looking at a laptop together

Start here: an S corp is not a type of company

It is a tax election. You form an LLC, and then — if the numbers justify it — you ask the IRS to tax that LLC as an S corporation. You are choosing how you are taxed, not what you are.

This confusion costs money in both directions. People elect S corp treatment far too early and pay for payroll, a second tax return, and more bookkeeping on profit too small to justify any of it. Others stay sole proprietors years past the point where self-employment tax on every dollar has become the single largest expense they have.

The options, side by side

DBA (Doing Business As)

Liability protection: None

Just a name. A DBA is not a business structure and gives you no protection whatsoever.

How it’s taxed
Whatever the underlying person or entity is taxed as.
Cost to set up
Usually $10-$100, filed with a county or state office
Ongoing burden
Periodic renewal in some states
Best for
Operating under a different name than your legal one. Often paired with a sole proprietorship or an LLC.

Watch out: People routinely believe filing a DBA 'registered their business' and protected them. It did neither.

Sole Proprietorship

Liability protection: None

What you already are if you started working and never filed anything.

How it’s taxed
Profit flows onto your personal return (Schedule C). You owe self-employment tax on all of it.
Cost to set up
$0 - it is the default
Ongoing burden
Quarterly estimated taxes
Best for
Testing an idea with low liability exposure and little revenue.

Watch out: Your personal assets are exposed. If the business is sued, your house and savings are in scope.

General Partnership

Liability protection: None

The default when two or more people go into business together.

How it’s taxed
Pass-through. Each partner reports their share.
Cost to set up
$0 - it is the default
Ongoing burden
Partnership return (Form 1065) plus K-1s
Best for
Almost nobody, deliberately.

Watch out: You are personally liable for what your partner does in the name of the business. Most partnerships should be LLCs.

Limited Liability Company

Liability protection: Yes, if you maintain it

The common right answer. Separates personal assets from the business, with flexible taxation.

How it’s taxed
By default taxed like a sole prop (one owner) or partnership (multiple). Can elect S corp or C corp treatment.
Cost to set up
State filing fee, roughly $40-$500 depending on the state
Ongoing burden
Annual or biennial report in most states; some states charge a franchise tax
Best for
The large majority of small businesses, from single-owner service businesses upward.

Watch out: Protection is not automatic. Mixing personal and business money is the fastest way for a court to disregard the LLC entirely.

LLC with S Corp election

Liability protection: Yes, if you maintain it

Not a different entity — an LLC that has asked the IRS to tax it differently.

How it’s taxed
You pay yourself a reasonable salary through payroll; remaining profit is not subject to self-employment tax.
Cost to set up
Your LLC cost, plus filing Form 2553
Ongoing burden
Real payroll, a separate business return (1120-S), and higher bookkeeping cost
Best for
Profitable businesses where the self-employment tax saved exceeds the added payroll and accounting cost — often somewhere around $40k-$80k of net profit.

Watch out: The IRS requires 'reasonable compensation'. Paying yourself a token salary to dodge payroll tax is a well-known audit trigger. Run the numbers with a CPA first.

C Corporation

Liability protection: Yes

A fully separate taxpayer. Right for venture fundraising, usually wrong for everyone else.

How it’s taxed
The company pays corporate tax, and shareholders pay again on dividends — the 'double taxation' problem.
Cost to set up
State filing fee, typically higher than an LLC
Ongoing burden
Corporate return, board and shareholder formalities, minutes, more bookkeeping
Best for
Raising venture capital, issuing stock options, or retaining significant earnings inside the company.

Watch out: Founders sometimes incorporate as a C corp because it sounds more serious. If you are not raising outside equity, it usually just costs you more.

How you actually set one up

The order matters, and several of these steps are free.

  1. 1

    Pick your structure

    Free

    For most people this is an LLC. Decide before you file anything, because changing later means new paperwork and sometimes a new EIN.

  2. 2

    Check your name is available

    Free

    Search your state's business entity database before you print anything. Also check whether the domain and a basic trademark search come back clean.

  3. 3

    File with your state

    Roughly $40-$500, paid to the state

    Articles of Organization for an LLC, Articles of Incorporation for a corporation. You file this directly with your Secretary of State or equivalent office.

  4. 4

    Get your EIN from the IRS

    Free

    This is free and takes about ten minutes online, directly at IRS.gov. Formation services charge $50-$300 to do this for you. There is no faster or better version of an EIN.

    Apply for an EIN at IRS.gov ↗
  5. 5

    Open a business bank account

    Usually free

    Do this immediately and never pay a personal expense from it. Commingling funds is the single most common reason a court sets aside LLC protection.

  6. 6

    Handle licenses and permits

    Varies widely

    Separate from formation. You may need state professional licensing, a local business license, a health permit, and a sales tax permit. This is where industry matters most.

    SBA - Apply for licenses and permits ↗
  7. 7

    Set up bookkeeping before you need it

    Free to modest

    Not glamorous, and the thing that most reliably determines whether your first tax season is calm or expensive.

What you are likely to be charged for that you may not need

None of these are scams. They are real services, sold at a real markup, to people who mostly do not know there is a free or cheaper path. Here is what each one actually is.

EIN filing

Typically $50-$300

Free at IRS.gov in about ten minutes.

Registered agent service

Typically $100-$300/year

You can generally be your own registered agent in your home state, as long as you have a physical address there and are available during business hours. Worth paying for if you want your home address off the public record, or you operate in several states.

Operating agreement template

Typically $50-$200

Many states publish guidance, and single-member templates are widely available for free. Worth paying a real attorney if you have partners — worth very little from a form vendor.

'Compliance' or 'worry-free' packages

Typically $100-$300/year

Usually a reminder to file your annual report, plus filing it for you. The state already sends the reminder.

Expedited processing

Typically Varies

The state controls the queue. Some states offer expedited filing directly, usually cheaper than the reseller's markup.

Common questions

Is an S corp a type of business?

No. An S corp is a tax election, not an entity type. You form an LLC and then file IRS Form 2553 to ask that the LLC be taxed as an S corporation. You are choosing how you are taxed, not what you are.

Does a DBA protect my personal assets?

No. A DBA is only a trading name. It creates no separate legal entity and provides no liability protection whatsoever. Many people believe filing a DBA registered their business and protected them; it did neither.

How much does it cost to form an LLC?

The state filing fee, which is roughly $40 to $500 depending on the state, paid directly to your Secretary of State or equivalent office. An EIN from the IRS is free. Most other costs sold alongside formation are optional.

Do I need to pay for a registered agent?

Usually not. In your home state you can generally act as your own registered agent, provided you have a physical address there and are available during business hours. Paying for one is worth it if you want your home address kept off the public record, or you operate in several states.

When should I elect S corp status?

Generally once net profit is high enough that the self-employment tax saved exceeds the added cost of running payroll, filing a separate return, and higher bookkeeping — often somewhere around $40,000 to $80,000 of net profit, depending on your state and a reasonable salary for your role. The IRS requires reasonable compensation, and paying yourself a token salary to avoid payroll tax is a known audit trigger.

Once you have staff, everything changes again

Your first employee brings a whole second set of obligations, and more arrive at 11, 15, 20, and 50. Our report walks through which ones apply to you now and which are coming.

Get your free report

This is general information, not legal or tax advice. Structure choice has consequences specific to your situation and your state — talk to a CPA or attorney before you decide, particularly before making an S corp election.