LLC or corporation? Choosing an entity for a creative business
Here is the short answer: if you are building a studio, a label, a production company, a design practice, or any business you intend to fund out of revenue, a limited liability company formed in the state where you actually operate is usually the sensible starting point. If you intend to raise money from institutional investors on standard venture terms, they will almost certainly expect a Delaware C corporation.
Most people asking this question are in the first group and have been told to behave like the second.
Below is how the pieces actually fit together — and one New York-specific requirement that catches new LLC owners off guard every year.
Two systems, not one
The single most useful thing to understand is that entity law and tax law are separate systems.
State law creates the entity. An LLC is, in the IRS's own words, "a business structure allowed by state statute." A corporation is likewise a creature of state law. The state charter is what creates the separate legal person, and state law governs the internal rules — who owns what, who decides what, and the conditions of the liability shield.
Federal law taxes it. The IRS then classifies that entity for federal income tax purposes. Classification depends on the number of owners and on elections the owners make — not on what the entity is called.
This is why "LLC versus S corp" is a confused question. One is an entity. The other is a tax classification. More on that below.
State-specific note: Entity law varies by state. This article discusses New York law and Delaware's publicly stated framework. It does not address the entity statutes of any other state.
Pass-through versus C corporation, at a high level
By default, an LLC with two or more members is treated as a partnership for federal income tax purposes, and an LLC with one member is treated as a disregarded entity — its activities are reported on the owner's return. In both cases the entity itself generally does not pay federal income tax; the tax consequences flow to the owners.
A C corporation is different. The IRS describes it as "a separate taxpaying entity," and describes the result plainly: "The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends." That is the double-tax structure people refer to. A corporation cannot deduct dividends it pays out.
For a business that distributes most of its earnings to its owners each year — which describes a great many creative businesses — a second layer of entity-level tax is a real cost with no offsetting benefit.
This is general information, not tax advice. Rates, deductions, and your own situation change the analysis. Confirm the tax treatment of any structure with a qualified tax advisor before you act on it.
Why investors expect Delaware C corporations
Delaware's Division of Corporations states that "more than 2,000,000 business entities have made Delaware their legal home" and that "more than 66% of the Fortune 500 have chosen Delaware as their legal home." It points to the Delaware General Corporation Law and to the Court of Chancery, which it describes as a business court more than 225 years old that "has written most of the modern U.S. corporation case law."
That concentration is the point. Investors, their counsel, and the standard financing documents are all built around a known statute and a deep body of decisions. Preferred stock, protective provisions, board structure, and stock option plans all have established mechanics there.
There is also a federal tax provision that pushes in the same direction. Section 1202 of the Internal Revenue Code provides an exclusion for gain on qualified small business stock, and that stock must be stock in a C corporation. Congress amended the provision for stock acquired after July 4, 2025, adding tiered holding periods — 50% at three years, 75% at four, 100% at five or more — and raising the aggregate gross assets ceiling to $75,000,000. The rules are detailed and full of conditions. Treat this as background, not planning, and take it to a tax advisor.
Why most creative businesses do not need one
A Delaware entity that operates in New York does not escape New York. It adds to it.
Delaware requires domestic corporations to file an annual report and pay franchise tax on or before March 1. The Division states the minimum tax is currently $175 under the Authorized Shares Method and $400 under the Assumed Par Value Capital Method, with a $200,000 maximum, plus a $50 annual report fee for non-exempt domestic corporations. Failure to file carries "a penalty of $200.00 plus 1.5% interest per month on tax and penalty."
Then there is New York. A foreign corporation doing business here files an Application for Authority under Business Corporation Law § 1304; the New York Department of State lists the fee as $225. And BCL § 1312(a) provides that "a foreign corporation doing business in this state without authority shall not maintain any action or special proceeding in this state" until it is authorized and has paid the fees and taxes due.
Worth noting honestly: the Department of State says it "does not give opinions as to what activities constitute doing business in New York State for qualification purposes." That judgment call is yours and your counsel's.
So the Delaware C corporation is not free. It is two states of compliance and a second layer of tax, bought in exchange for a structure that matters when institutional money arrives. If that money is not on your roadmap, you are paying for infrastructure you are not using.
Single-member LLCs
You do not need a partner to form an LLC. The IRS treats a single-member LLC as "an entity disregarded as separate from its owner, unless it files Form 8832," and the LLC's activities are reflected on the owner's federal return.
Two things to keep straight.
First, disregarded is a tax concept only. The entity still exists under state law, and the liability separation depends on you treating it as separate — its own bank account, its own contracts, its own records.
Second, the IRS notes that for employment tax and certain excise taxes, a single-member LLC "is still considered a separate entity," using its own EIN and name for those filings.
The S corporation is a tax election, not an entity type
There is no such thing as "forming an S corp." S corporation status is a federal tax classification you elect by filing Form 2553 with the consent of all shareholders.
The eligibility rules are strict. Per the IRS, the entity must be a domestic corporation, may have no more than 100 shareholders, may have "only one class of stock," and its shareholders "may be individuals, certain trusts, and estates" but "may not be partnerships, corporations or non-resident alien shareholders."
The timing is strict too. Form 2553 must generally be filed "no more than 2 months and 15 days after the beginning of the tax year the election is to take effect, or at any time during the tax year preceding the tax year it is to take effect." There is a relief path for late elections under Rev. Proc. 2013-30 where reasonable cause is shown, but the disciplined move is to calendar the deadline.
Note the collision: one class of stock and no entity shareholders are flatly incompatible with a typical venture financing. An S election is a tool for an owner-operated business, not a bridge to a priced round.
The New York LLC publication requirement
This one is specific, unforgiving on timing, and routinely missed.
Under New York Limited Liability Company Law § 206, within 120 days after the effectiveness of the initial articles of organization, the LLC must publish a copy of the articles or a notice "once in each week for six successive weeks, in two newspapers of the county" where its office is located — one weekly and one daily, "to be designated by the county clerk." The LLC then files a Certificate of Publication with the Department of State, with the newspapers' affidavits of publication annexed. The Department of State lists a $50 filing fee for that certificate.
If proof of publication is not filed within the 120 days, § 206 provides that "the authority of such limited liability company to carry on, conduct or transact any business in this state shall be suspended." The same section states that suspension "shall not limit or impair the validity of any contract or act" of the LLC, or impose personal liability on members or managers for the company's obligations.
Foreign LLCs qualifying in New York face a parallel requirement under § 802, running 120 days from the filing of the application for authority.
Two related New York points: the Department of State lists a $200 filing fee for articles of organization, and states that "the members of an LLC are required to adopt a written Operating Agreement," which may be executed before, at the time of, or within 90 days after filing the articles. It is an internal document and is not filed with the state.
Newspaper costs vary widely by county. Ask before you file, not after.
How to decide
Ask what you are optimizing for.
Revenue-funded business, few owners, profits distributed annually, operations in New York: an LLC formed here, with a real operating agreement, and the publication requirement calendared on day one.
Institutional fundraising on standard terms, an option pool, multiple classes of stock: the Delaware C corporation, entered deliberately and with tax counsel.
Somewhere in between: form the simpler thing now and convert when the reason to convert is concrete. Converting is work, but it is ordinary work. Unwinding a structure you never needed is also work — and you will have paid for it the whole time.
Sources:26 U.S.C. § 1202 (Cornell LII) · IRS — Limited Liability Company (LLC) · IRS — Single Member Limited Liability Companies · IRS — S Corporations · IRS — Forming a Corporation · IRS — Instructions for Form 2553 · NY LLC Law § 206 · NY LLC Law § 802 · NY BCL § 1312 · NY DOS — Forming a Limited Liability Company in New York · NY DOS — Application for Authority for Foreign Business Corporation · Delaware Division of Corporations — About the Division · Delaware Division of Corporations — Annual Report and Tax Instructions
This article is general information, not legal or tax advice, and does not create an attorney-client relationship. Entity and corporate law are state-specific; tax law is federal and separate. Thony Law PLLC is admitted in New York only.