The problem is actually the opposite, that S-Corp is not a scam but LLC is a tax hawk.  If your bootstrapped startup ever becomes profitability, you will learn quickly that taxation (with or without representation) is your number one cost (more than labor, more than sales and marketing).  First you pay 15.3% self-employment tax, then 35% Federal tax, then 9.3% State tax (if you live in California) and finally 9.25% sales tax (if you live the Bay Area), that's 69% tax before net profit (necessary for rainy days).  As my good friend Art once told me, everyone eventually becomes a "conservative", you just have to have something to "conserve" first.  I immediately became a conservative when I saw profit and I believe you will too.  If you want to avoid double-taxation (i.e., first tax as an individual, then as a Corporation), then you have two choices. You can form an LLC or you can form a S-Corp.  The advantage of LLC is that there is a lot less legal overhead and there is no restriction with foreign ownership (this is a big deal if you happen to have a co-Founder who is not a US resident or citizen or if you have partners overseas). The problem with LLC is that <i>ALL</i> of your profits are taxed as self-employment income (15.3% off the top).  On the other hand, with S-Corp, you do need to pay yourself a market-value salary (or you will be subject to audit so it is never a scam as some commenters would suggest).  In my own experience, the optimal solution turns out to be that of forming your startup as an LLC but file a S-Corp (form 1120S). The following is a good read.<p><a href="http://www.startupforless.org/2008/01/make-money-then-make-meaning-by-denny-k-miu.html" rel="nofollow">http://www.startupforless.org/2008/01/make-money-then-make-m...</a>