If you're starting a business in Indiana or Ohio — or thinking about restructuring an existing one — you've probably run into the LLC vs S-Corp question. Both offer liability protection. Both are widely used by small businesses. But they're not the same thing, and the right choice depends on your specific situation.
This guide walks through the key differences and gives you a framework for deciding.
The Core Confusion: Entity Type vs Tax Election
Before we compare, an important clarification: an LLC is a legal entity. An S-Corp is a tax election. They're not mutually exclusive.
You can be an LLC taxed as a sole proprietorship (by default), as a partnership (if multi-member), as an S-Corp, or as a C-Corp. You can also be a corporation taxed as an S-Corp.
So the real question isn't "LLC or S-Corp" — it's usually "Should my LLC be taxed as a sole proprietorship/partnership, or should it elect S-Corp status?" And sometimes it's "Should I form a corporation instead of an LLC?"
The Simplest Path: LLC with Default Tax Treatment
Most small businesses start as single-member or multi-member LLCs with default tax treatment. This means:
- Single-member LLC: Taxed as a "disregarded entity" — profits and losses flow to your personal tax return (Schedule C). You pay self-employment tax (15.3%) on net earnings.
- Multi-member LLC: Taxed as a partnership. Each member reports their share of profits and pays self-employment tax on it.
This is simple, cheap, and works well for many small businesses. You file your business taxes as part of your personal return.
When S-Corp Election Makes Sense
S-Corp status can save money on self-employment taxes — but only if your business earns enough.
Here's the mechanics:
- As a default LLC, all your net profit is subject to self-employment tax (15.3% — Medicare and Social Security).
- As an S-Corp, you must pay yourself a "reasonable salary" (subject to payroll taxes), but distributions above your salary are not subject to self-employment tax.
- If your business nets $80,000 and you pay yourself a reasonable salary of $50,000, the remaining $30,000 in distributions avoids the 15.3% self-employment tax. That's $4,590 in savings.
But S-Corp status comes with costs: you must run payroll, file a separate corporate tax return (Form 1120-S), and follow formalities. For businesses netting less than roughly $50,000–$60,000 in profit, the administrative costs often outweigh the tax savings.
When a Corporation (C-Corp) Makes Sense
C-Corporations are less common for small businesses but become relevant if you:
- Plan to raise venture capital or angel investment
- Want to offer stock options to employees
- Plan to go public
- Have profits you want to reinvest in the business at a lower corporate rate
C-Corps face double taxation (once at the corporate level, once when dividends are paid), which is why most small businesses avoid them. But for venture-backed startups, they're the standard.
State-Level Differences: Indiana vs Ohio
The federal side of S-Corp taxation is uniform. But state-level filing requirements and fees differ between Indiana and Ohio.
Indiana:
- LLCs file Articles of Organization with the Indiana Secretary of State ($95 filing fee, as of 2026)
- Biennial Business Entity Report required ($32–$50)
- No state-level S-Corp election form; federal election is recognized
- Indiana has a flat personal income tax rate (approximately 3%)
Ohio:
- LLCs file Articles of Organization with the Ohio Secretary of State ($99 filing fee, as of 2026)
- Annual report required ($0 for most small businesses)
- Ohio has a Commercial Activity Tax (CAT) for businesses over a certain revenue threshold
- Ohio offers a small business income tax deduction for certain pass-through entities
The specific state filings and deadlines can change. Always confirm with the Secretary of State or an attorney before filing.
Liability Protection: Both Protect You, With Conditions
Both LLCs and corporations (S or C) provide liability protection — meaning your personal assets are generally shielded from business debts and lawsuits. But this protection isn't automatic:
- You must keep business and personal finances separate
- You must follow corporate formalities (meeting minutes, separate bank accounts, etc.)
- You must not use the business to commit fraud or illegal acts
If you commingle funds or treat the business as your personal piggy bank, a court can "pierce the corporate veil" and hold you personally liable.
How to Decide: A Simple Framework
Ask yourself these questions:
- Do you expect net profit above $60,000? If yes, S-Corp election may save you money.
- Do you plan to raise venture capital? If yes, consider forming a C-Corp from the start.
- Do you want to minimize administrative work? If yes, stay with a default LLC.
- Do you have partners? Multi-member LLCs taxed as partnerships often make sense.
- Do you plan to sell the business or bring in investors? Structure choices affect how cleanly you can do this.
The Cost of Getting It Wrong
Restructuring later is possible — but it's more expensive than getting it right the first time. Changing from an LLC to a corporation, or electing S-Corp status late, involves paperwork, potential tax consequences, and legal fees.
Even more importantly, your structure affects:
- How you can bring in partners or investors
- How you handle an exit or sale
- How you split profits and losses
- What happens if a partner wants to leave
These are decisions worth getting right at formation, not six months later.
Work With a Licensed Attorney
Choosing your business structure isn't just a tax question — it's a legal question with long-term consequences. A licensed attorney in your state can help you weigh the options and file correctly.
FirmDuet can match you with a licensed attorney in Indianapolis or Columbus — free, confidential, no obligation.