To answer your primary question, it doesn't matter that you "set aside" funds to use for the business. As long as you can keep accurate records of what you spend on your business, you'll be fine from an accounting/legal perspective. As far as the legal structure of your company, you will probably want to choose from either an S-Corp or an LLC because both allow you to avoid being taxed twice. You mentioned you weren't seeking VC money, but even if you were, that shouldn't influence your legal structure choice too much. Here are the key differences:
1. Self-employment taxes: A primary advantage of an S-Corp is that you can avoid having to pay a portion of your self-employment taxes, if you plan on taking more than "a normal salary" for yourself from the business. (I can elaborate on this if you want.)
2. Acquired/Investors: S-Corp's sometimes make it easier to be acquired or to be invested in.
3. Ease of operation: LLC is very easy to setup and maintain from an administrative perspective. (I've always heard this, but admit I don't know exactly how "hard" an S-Corp is, paperwork wise, or how "easy" an LLC is)
4. Shareholder limit: S-Corp can only have 100 shareholders, LLC doesn't have this limit.
5. Profit distribution. S-Corp you must distribute profits in proportion to equity ownership. LLC can distribute however it wants. (This one seems odd, and although I know it to be a rule, I don't know the details of how its carried out or enforced)
Disclaimer: I'm not a lawyer, this is not legal advice. Most of this stuff I've read through Nolo publications and other books and the rest I heard while talking to people, so check with your own lawyer.
(3) S-Corp like a C-Corp requires you to act in ways demonstrating that the corporation is a separate business entity, with its own agenda. If it can be demonstrated in court that you are mixing your personal assets in with your corp, then the court can decide that you no longer receive the liability protection of the corporation. This means doing things such as having formal meetings of the board of directors, keeping minutes, having resolutions for the major business decisions (even if it is affirming the "actions of an employee").
LLCs, on the other hand, from the last I've read of them, do not have the case history saying how much formality is required. According to Nolo's book, you're better off running it in the same kind of formality as a corporation, just in case.
One thing LLCs can do well, is that they are meant to offer the same kinds of liability protection as LLPs (limited liability partnerships), which can be often stronger than a corporation. But it depends on how you set up the LLC's operating agreement.
(4) There are more limits to shareholders than just 100 shareholders for an S-Corp. The shareholders must be US Citizens, and a natural person. In other words, if you have a VC fund or an Angel investing money in from their business entity, you will have to convert the S-Corp to a C-Corp.
LLCs may not have the shareholder limits, but selling membership interests over a certain number will trigger SEC regulations -- the same as shopping for angel investors for a corp.
(5) Caveat: distributing profits from the LLC however way you want requires some extra bookkeeping. You will have to track the tax basis of every single LLC member, and track how it changes depending on money disbursed or put back into the LLC. There should also be clauses documenting how this works in the operating agreement. It is something you'll definitely want to ask your tax lawyer or accountant about.
As far as I know, this feature was inherited from the LLP. It lets you defend the assets held by the entity by starving out creditors -- you have to pay taxes (assuming the LLC elected pass-through taxing instead of corp taxing) on the profits regardless of how much is actually disbursed.
But to reiterate: I'm not a lawyer, this is not legal advice. Most of this stuff I've read through Nolo publications and other books, so check with your own lawyer.
1. Self-employment taxes: A primary advantage of an S-Corp is that you can avoid having to pay a portion of your self-employment taxes, if you plan on taking more than "a normal salary" for yourself from the business. (I can elaborate on this if you want.)
2. Acquired/Investors: S-Corp's sometimes make it easier to be acquired or to be invested in.
3. Ease of operation: LLC is very easy to setup and maintain from an administrative perspective. (I've always heard this, but admit I don't know exactly how "hard" an S-Corp is, paperwork wise, or how "easy" an LLC is)
4. Shareholder limit: S-Corp can only have 100 shareholders, LLC doesn't have this limit.
5. Profit distribution. S-Corp you must distribute profits in proportion to equity ownership. LLC can distribute however it wants. (This one seems odd, and although I know it to be a rule, I don't know the details of how its carried out or enforced)