When you choose to make the next step in your business and
incorporate, you are faced with a big decision: should you form an LLC
or a corporation? With either choice, you gain limited liability
protection to shield your personal assets from the debts and liabilities
of your business, as well as several tax advantages. Still, there are
big differences between these two types of business entities and your
choice will have a big impact on your business. Here is some information
to help you choose between the two.
Limited Liability Company
What is an LLC? An LLC, or limited liability company, is one of the most popular choices for small businesses and it is basically a pass-through entity, but it can be taxed as a corporation as well. Many business owners choose to form an LLC because this entity is very flexible; the company income can be passed through to individual members, who pay their share on their tax return, or it can be taxed as a C corporation or S corporation.
LLCs have no specific structure or management that must be met. While most people choose to manage their LLC with members, or owners, they can also choose to form an LLC with a Board of Managers. With an LLC, you gain limited liability protection, which protects your personal assets if your business is sued or cannot pay its debts.
Corporation
A corporation is usually a better fit for a larger company as there are strict requirements to meet. A corporation must have a central management structure with a Board of Directors. Ownership is also very different as a corporation issues stock, which is all the same. A corporation is also required to have regular meetings, maintain and file documents, and maintain minutes.
An LLC can choose how it will be taxed, but a corporation will be subject to something called double taxation. This means that business income is taxed at a corporate level and then taxed again when it is distributed to the shareholders.
Choosing Between an LLC and Corporation
There is no choice that will be right for every business. As a general rule of thumb, however, an LLC is a better fit for small businesses and start-ups, as LLCs have less requirements and it costs less to maintain and form an LLC while enjoying limited liability. Corporations are usually a better fit for large companies.
The best way to choose between these two entities is with the help of a lawyer, accountants, or a corporate services company, as the decision is based on many factors related to your business, including your risk level, business income, and long-term goals.
Limited Liability Company
What is an LLC? An LLC, or limited liability company, is one of the most popular choices for small businesses and it is basically a pass-through entity, but it can be taxed as a corporation as well. Many business owners choose to form an LLC because this entity is very flexible; the company income can be passed through to individual members, who pay their share on their tax return, or it can be taxed as a C corporation or S corporation.
LLCs have no specific structure or management that must be met. While most people choose to manage their LLC with members, or owners, they can also choose to form an LLC with a Board of Managers. With an LLC, you gain limited liability protection, which protects your personal assets if your business is sued or cannot pay its debts.
Corporation
A corporation is usually a better fit for a larger company as there are strict requirements to meet. A corporation must have a central management structure with a Board of Directors. Ownership is also very different as a corporation issues stock, which is all the same. A corporation is also required to have regular meetings, maintain and file documents, and maintain minutes.
An LLC can choose how it will be taxed, but a corporation will be subject to something called double taxation. This means that business income is taxed at a corporate level and then taxed again when it is distributed to the shareholders.
Choosing Between an LLC and Corporation
There is no choice that will be right for every business. As a general rule of thumb, however, an LLC is a better fit for small businesses and start-ups, as LLCs have less requirements and it costs less to maintain and form an LLC while enjoying limited liability. Corporations are usually a better fit for large companies.
The best way to choose between these two entities is with the help of a lawyer, accountants, or a corporate services company, as the decision is based on many factors related to your business, including your risk level, business income, and long-term goals.
Christine writes for USA Corporate Services, Inc, a corporate service company that helps non-residents and residents form an LLC or incorporate in any state in the U.S.
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