More Than Half of American Employers Are S Corporations. The C Corporation Takes Over at About Fifty People.

Every founder picks a legal form early, usually on an accountant’s advice, and then never looks at what everyone else picked. The Census Bureau counts it. The answer is lopsided, and it moves with your headcount in one direction only.

One form is not just common. It is the majority.

Start with the count. Of 7,750,438 for-profit workplaces with at least one employee, 3,986,312 file as S corporations. That is 51.4% — not a plurality, a majority — and it exceeds the 48.6% held by every other for-profit form combined. C corporations are next at 26.1%, then partnerships at 12.2% and sole proprietorships at 9.9%.

The sole-proprietorship number is the one that surprises people, so it is worth being precise about what it means. Only 9.9% of employers are sole proprietorships. That is not because the form is rare — it is the most common way to own a business in America by a wide margin. It is because almost every sole proprietorship has no employees, and a business with no employees is not in this file at all. County Business Patterns counts establishments — single physical locations — that have at least one paid employee and an EIN. It excludes the self-employed with no employees, private-household and railroad employees, crop and animal production, and most government. So this is a census of employers, not of businesses: the 31 million Schedule C filers we looked at last week are almost entirely outside it.

The jobs are in the other column

Run the same four forms against employment instead of establishment counts and the top two change places. C corporations are 26.1% of employers and hold 50.2% of private for-profit employment. S corporations are the majority of employers and hold 31.4% of the jobs. Sole proprietorships, 9.9% of employers, hold 4.3%.

The mechanism is simply average size. The average C corporation employs 30.1 people, the average partnership 17.3, the average S corporation 9.6 and the average sole proprietorship 6.8. A C corporation is a little over three times the size of an S corporation, and that is the whole of it: enough to move it from second place on the count of employers to first place on the count of jobs, without a single business changing what it does. The two smaller forms do not change places at all — partnerships and sole proprietorships sit third and fourth on both measures.

Your legal form tracks your headcount, and only one way

Cut the same establishments by how many people they employ and a clean gradient appears. Among workplaces with fewer than five people, 57.1% are S corporations and 19.2% are C corporations. At a thousand or more, those numbers are 12.0% and 73.8%. The S-corp share falls at every one of the eight steps up the scale and the C-corp share rises at every one of them — no reversals in either series.

The crossing point is worth marking because it is where the advice changes. S corporations still lead in the twenty-to-forty-nine band, 40.8% against 38.0%. In the next band up, fifty to ninety-nine, the C corporation is ahead for the first time, 43.7% against 35.1%. The other two forms do not behave so tidily: the partnership share rises to a peak of 17.0% in the middle of the range and falls away on both sides of it, and the sole-proprietorship share drops steeply early — 12.9% to 3.8% by fifty people — and then flattens out near 2.8% rather than continuing down.

If you are an S corporation with four people, you have not made an unusual choice. You have made the most common choice in the American economy.

What to do with this

The practical read is about benchmarking, not about tax. If you run a small S corporation, more of the businesses around you are structured the way yours is than any other way — 57.1% of workplaces under five people and 46.0% of those with ten to nineteen, in both cases the largest single group. When an advisor, a lender or a piece of software implies you have set things up oddly, the count says otherwise.

There is no LLC line in any of this. Census assigns legal form from administrative records — that is, from how a business files its taxes — and its published categories are C corporation, S corporation, sole proprietorship, partnership, non-profit, government and other. An LLC is a state registration, not a federal tax class, so an LLC appears in this data as whatever it elected to be taxed as. That matters if you are trying to place yourself in this chart: if you registered an LLC and elected S-corp taxation, you are in the 51.4% — the file simply never records the letters LLC. It is also why the honest version of the question is not ‘should I be an LLC or an S corp’, which compares two different kinds of thing, but ‘which state registration, and which tax election’. That is a conversation for an accountant who knows your numbers, and this data cannot have it for you. What it can tell you is what everyone else settled on. The split by industry is sharper still.

Published by The Lonely Entrepreneur — the community and coaching platform for entrepreneurs who are building alone. lonelyentrepreneur.com

This article is for educational purposes and is not a substitute for professional financial or legal advice.