Most businesses start out as a sole proprietorship and eventually change to an LLC or S-Corp. As mentioned in some of the responses, the IRS website can be overwhelming and confusing unless you have a degree in finance or accounting. You may actually find better (more understandable) information at your local Small Business Development Center or online. There are two main advantages to choosing an S-Corp or LLC: taxes and liability. If you choose an LLC, be sure to elect to be treated as an S-Corp for tax purposes. Otherwise, you may as well stay a sole proprietor since all profits are subject to employment taxes. If you make the LLC-S-Corp election or just choose to be an S-Corp, you will pay yourself a wage or salary as an employee (subject to employment taxes), and any remaining profit will be taxed once at the individual tax rate (no employment taxes). The IRS says that the salary or wage you pay yourself must be reasonable or inline with other professionals in your industry. That said, most people pay themselves as little as they can get away with in wages and take the rest as profit. As far as liability is concerned, both an LLC and S-Corp are separate business entities (unlike a sole p.). Therefore, if a lawsuit occurs, your personal assets can not be touched. It is important that you keep a separate business bank account. If you comingle funds, it could be proved in court that you were actually operating as a sole p., not a separate entity.