LLC vs S-Corp in California: which is right for your business?

“Should I form an LLC or an S-Corp?” is the most common question we hear from California founders. Here’s the honest answer.

The short version

• LLC: simpler, flexible, lower paperwork. Great for most California small businesses.
• S-Corp: potential self-employment tax savings once you’re consistently profitable.

Liability protection: a tie

Both shield your personal assets from business debts and lawsuits — assuming you don’t pierce the corporate veil.

Taxes: where it gets interesting

An LLC is taxed as a pass-through by default. An S-Corp election lets you split income between salary (subject to payroll tax) and distributions (not). Once profits exceed roughly $50–$80K, this can save real money — but only if you actually run payroll.

The California catch

California charges an $800 minimum franchise tax on both. LLCs in California also pay an additional gross-receipts fee starting at $250K in revenue.

Paperwork & formality

LLCs require an Operating Agreement and Statement of Information. S-Corps require bylaws, a board, meeting minutes, and stricter recordkeeping.

Our usual recommendation

Start as an LLC. Elect S-Corp tax treatment once you’re profitable enough to justify the payroll overhead. We help California founders make this call every week — book a free consultation if you’d like a tailored answer.