A Guide on Starting a Business LLC vs Corporation

a guide on starting a business llc vs corporation


Maybe right now you’re at a point where you’ve decided to move from a business idea into action. While it might seem like a lot to learn, remember that even the most well-known companies had humble beginnings. How firms are structured becomes crucial when they are founded or as they evolve. That’s why we’ve put together a practical guide on starting a business LLC vs. a corporation. In some circumstances, forming a corporation makes sense since it provides certain advantages that business owners may find appealing. If you find yourself at this fortunate crossroads, you will be relieved to learn that the Corporation Center offers a great variety of forms available online.

Corporation vs. Limited Liability Company?

A corporation is a separate legal entity from its owners, who are known as shareholders. It has legal rights and obligations, can engage into contracts, sue or be sued in court, and pay taxes on its own.

The fundamental benefit of forming a corporation is that it provides limited liability protection for the owners, which means that if your company is sued for any reason (whether it’s justified or not), only the company’s assets are at risk. Although other business structures, such as LLCs and partnerships, provide some liability protection, corporations often provide more than those two possibilities.

A limited liability company (LLC) is a type of business entity. It’s a cross between a partnership and a corporation, so the business’s owners must comply with many of the same legal requirements as either. Members of an LLC are divided into two categories: managing members and non-managing members. A manager might be an owner, an officer, or an employee who makes business decisions.

a guide on starting a business llc vs corporation

Forming An LLC Vs. Incorporating. Which Is Right For You?

The main difference between an LLC and a corporation is that the former is a hybrid entity, while the latter is a separate entity. The U.S. Small Business Administration defines corporate entities as follows: “A corporation is a separate legal person created by filing articles of incorporation with your state government or otherwise following applicable laws.”

While each type comes with its own pros and cons, it’s important to note that both tax structures require additional paperwork and fees when compared to sole proprietorships and partnerships.

For example, corporations may also be subject to double taxation: when things like profits get taxed once at the corporate level and then again when those profits get distributed among owners/shareholders as dividends or distributions from earnings.

Given these factors, many entrepreneurs choose LLCs over corporations because they provide more flexibility than their S-corporation cousins—and less hassle than C-corporations!

Get Started By Choosing a Unique Name

Though it may seem self-evident, the first step in founding either a corporation or an LLC is to choose a name. You may be past this stage in the planning process, but naming your company is an important part of the actual creation process. The terms “incorporated,” “corporation,” or “limited” should appear anywhere in the name of your company, depending on the state in which you are forming it.

You should also check to see if the name you desire is available. Contacting your state’s office of businesses and corporations is usually the best way to go. Some states provide an easy-to-use online database for your convenience.

Annual Corporate Meetings And Records

After you’ve incorporated, you’ll need to hold a shareholder meeting once a year. Corporate records must also be retained, and they must be kept for a minimum of five years. Unless the board of directors approves otherwise, these records should be preserved at the corporation’s principal place of business. Shareholders or their representatives shall be permitted to see corporate records upon reasonable request.

You Have Options When It Comes To Registering Your Business.

You have options when it comes to registering your business. You can register as either a corporation or an LLC, which are both types of entities. What’s the difference? For one thing, you’ll need to file different paperwork depending on which type of entity you choose. Getting a registered agent, for example, might be mandatory in certain states or merely a recommendation. There are other considerations as well:

A corporation comes with stricter requirements than an LLC. This means there will be more paperwork involved in setting up your business and filing annual reports. However, corporations do have some advantages over LLCs—for example, they may be able to offer shares in the company so that investors can own part of it while still retaining control over its management decisions (but not all). If this is something that interests you but you aren’t sure whether your small business could benefit from going public with such offerings yet, consult an attorney who specializes in start-ups before making any decisions about incorporating yourself into this type of structure versus simply forming an LLC.

Creating A Corporation Or LLC Can Be Both Difficult And Rewarding.

The decision to form either a corporation or an LLC depends on what you want from your business in the long-term. Starting a corporation can be both challenging and rewarding, but it’s important to know that it will require more time and money than an LLC. For example, corporations are much more complex than LLCs. They are required to have directors and shareholders who manage the company and control its finances. 

You may need to dig down certain forms from your local Secretary of State’s office once it’s time to put together your articles of incorporation. Once you get them, you can fill them out—perhaps with the help of a business attorney–and mail them in. Fortunately, you may accomplish this online at the Corporation Center with our user-friendly, encrypted, and safe online forms.