C-Corps vs S-Corps vs LLCs: Which One Should I Choose?

November 03, 2021 |

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In our previous articles, we laid the groundwork to plan your independent RIA, including your business strategy and your budget. But one equally important decision (especially to Uncle Sam and FINRA) lies ahead: your business structure. You can’t run an RIA as a freelance operation, and there are significant tax and legal benefits to separating your business and personal assets as an organized company.

In addition to your business structure, you’re going to need to set up bank accounts too and ensure you’ve filed any necessary paperwork with regulatory agencies. Without this, you can’t begin operations.

There’s a lot of work to be done in this step, so we’re going to split this into two articles. This article will focus on C-Corps, S-Corps, and LLCs while next article will focus on setting up business bank accounts and important regulatory and legal filings that you must complete.

C-Corps, S-Corps, and LLCs

We strongly recommend that you consult a lawyer before choosing a business structure and hire a compliance attorney to help draft your investment management agreements and other legally required documents. While some lawyers offer packages that handle all the necessary paperwork to set up your business, you can register yourself through a service like Legalzoom to save money.

There are three common business structures in the US, the C-Corp, the S-Corp, and the LLC. Each has its benefits (and drawbacks). Here’s a brief description of each, if you aren’t familiar with them already:

  • C-Corp: This is the stereotypical business: you have bylaws, executives, and a board of directors, with the company assuming all financial and legal liability. The firm is taxed at the corporate tax rate and may offer shares, and profits can be reinvested into the business rather than pushed onto business owners’ tax returns.
  • S-Corp: The S-Corp is not a business structure like most people think, but rather a tax status. C-Corps and LLCs may elect to be taxed as an S-Corp through filing a Form 2553 with the IRS. Making this election allows you to take profits in the form of dividends, and losses “pass-through” in the same fashion, both of which can lower your tax liability.
  • LLC: Short for Limited Liability Company, this structure’s primary role is to shield the members from liability. There is far less paperwork to fill out, and decision-making isn’t distributed like a C-Corp, which must run all decisions through the board before being adopted. Remember that LLCs are considered a “disregarded entity” by the IRS, meaning you report business income and expenses on your own tax return.

Choosing an LLC is your best bet for an independent RIA, as it is the easiest (and cheapest) method. Keep in mind as a disregarded entity, the IRS will expect you to file any business income under your tax return unless you’ve made the S-Corp election.

While your business strategy and budget are critical, setting up legal structure and registrations  is probably your most important one so far. RIAs are highly regulated, and regulations are confusing to those who aren’t well versed in them. Ensuring your business is compliant is critical.

In our next article, we are going to work through the business strategy in more detail focusing on setting up business accounts, getting legal help, taking the proper exams, and planning a manageable and realistic timeline to establish your new RIA.


The Shoestring RIA is a series of articles written and published by the BillFinTM team at Redi2 Technologies designed to help RIAs as they start out on their own. We recognize just how challenging it is to venture out and build a successful business. Our articles will be focused on helping these new businesses with a wide range of topics.