Which corporate structure is best?

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(FORTUNE Small Business) -- Dear FSB: Is a C corp or an LLP the better way to set up a business with first-year revenues in excess of $2 million?

- Michael Dotson, Pasadena

Dear Michael: Choosing the ideal form of business organization from the alphabet soup of options is an issue that plagues many entrepreneurs. We tried to contact you to learn more about your business, and the best answer depends on those specifics. But in your home state the choice may be simpler - and may involve an alternative you didn't mention. California, like most states, limits the use of the LLP to professionals, who are narrowly defined there as licensed accountants, lawyers, and architects. If that's not you, an LLP won't work.

Instead, consider this: "Many small-business owners seeking to protect their personal assets decide between forming a corporation or a limited liability company," says Esther Barron, clinical assistant professor at Northwestern Law School in Chicago. "Both form offer owners limited liability protection, assuming they adhere to certain formalities," she says. Yet they differ in their tax treatment. "C corporations can face double taxation," says Barron. "Their profits are taxed at the corporate tax rate, and the shareholders are taxed again when the money is passed on to them in the form of dividends."

David Sokolow, who teaches business associations at the University of Texas Law School in Austin, notes, "Traditionally, a partnership form offered pass-through taxation, which keeps you from being taxed twice. Today you can achieve the same sort of thing with an LLC." Regarding taxes, your firm's revenue is less relevant than your profit, which is the taxable sum, says Sokolow. Your decision will require you to assess several additional factors, such as cost, simplicity, and limits on how you may raise capital. "In recent years the LLC has become the fastest-growing business form chosen by small-business owners," he says.