LLC, corporation or nonprofit: which are you forming?
Last reviewed November 13, 2026
All three are created by filing with a state, all three have to pick a name that's free in that state, and all three can protect the people behind them from the organization's debts. They differ in who owns them, how they are run and how they are taxed.
At a glance
| LLC | Corporation | Nonprofit corporation | |
|---|---|---|---|
| Owned by | Members | Shareholders | No one |
| Run by | Members or managers | Directors and officers | A board of directors |
| Formation document | Articles of organization | Articles of incorporation | Nonprofit articles of incorporation |
| Internal rules | Operating agreement | Bylaws | Bylaws |
| Profits | Go to the members | Go to shareholders as dividends, or are kept | Stay in the organization |
| Typical use | Small and mid-size businesses, property holding | Businesses raising investment or issuing shares | Charities, associations, clubs |
LLC
The limited liability company is the usual choice for a small business. It has few formalities: no required board, no required annual meeting in most states, and the owners set their own rules in an operating agreement. By default the business’s profit is taxed on the owners’ own returns, and an LLC can ask the IRS to tax it as a corporation instead.
Corporation
A corporation issues shares, which makes it the standard structure for raising money from investors and for granting equity to employees. It has more structure: directors, officers, bylaws, and records of meetings and decisions. A corporation pays tax on its own profit unless it qualifies for and elects S corporation treatment, which passes profit through to shareholders. “C corp” and “S corp” are tax labels, not different things you file with the state.
Nonprofit corporation
A nonprofit corporation has no owners. Money it brings in has to be used for its purpose and can’t be paid out as profit. Forming one with the state doesn’t make it tax-exempt. That takes a separate application to the IRS, and often to the state tax agency. Many states also require charities to register before asking the public for donations.
How the choice affects your name
- The ending changes. An LLC’s name must include an LLC designator. A corporation’s must include a corporate one such as Inc. or Corp. Many states don’t require an ending for a nonprofit. Each state lists the endings it accepts.
- The search doesn’t. A state compares your name against every entity type on its records. “Northgate Bakery LLC” is blocked by an existing “Northgate Bakery, Inc.” because the ending is ignored. See distinguishable name.
- Some words are reserved. Words that suggest a bank, an insurer, a university or a licensed profession usually need approval, whatever the entity type.
If you’re unsure
For most people starting a small business, the realistic choice is between an LLC and a corporation, and it comes down to tax and investment plans. Those depend on your numbers, so they are a question for an accountant or attorney. This page is general information, not advice.
Whichever you choose, the first step is the same: check that the name is free.
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