A Quick Explainer on Starting a Business LLC vs. Corporation

starting a business llc vs corporation

Do you consider yourself to be something of an individualist? Do you have a bit of a maverick streak in terms of your professional life? If the answer to both of those questions is, “Yes,” you may want to look closely at the idea of starting your own business. Entrepreneurship is a noble pursuit, and by creating your own business you can potentially experience uncapped earnings and call your own shots. Understandably, the idea of being your own boss has a broad appeal, but not everybody has what it takes to execute in that area. When you own and operate your own organization, you will have your work cut out for you. Even just getting off the ground is probably going to take some 80-hour weeks here and there. Additionally, you are going to need to make a number of consequential decisions, ranging from what your business will be called to how it will be legally structured. For some, a limited liability company (LLC) makes sense, from an organizational standpoint. For others, an S– or C-corporation is a logical fit. In order to know what is best for you, it is important to understand the difference between starting a business LLC vs. a corporation

So, after much deliberation and some conversations with your family, you have determined that it is time to launch your own business. While there is, of course, a fair degree of excitement in getting your own endeavor up and running, there is also a certain amount of pressure to get things built the right way. One way in which you can alleviate some of that anxiety is by assigning your business a legal structure. Depending on the state in which your business will operate, there are a number of different ways that you can go about doing this. You can start a general partnership (GP) if you and one or more others are going into business together. You could also roll with the simplicity of a sole proprietorship. Many businesses, however, will find themselves weighing the benefits of starting a business LLC vs. a corporation at the outset. Read on to learn more about which structure may be right for you.

Starting a Business LLC vs. Corporation: What is a Limited Liability Company?

Take a look at some of the business cards you have collected from your professional colleagues and peers. If you look at the names of the organizations they work for, do you see the letters “LLC” with a degree of frequency? You probably do, which is for good reason, as LLCs are very popular in the business world. When you set up an LLC, you are separating your business as a distinct legal entity that offers its members (owners) limited liability protection. What this means is that you and the other members will be able to shield your personal assets from potential bankruptcies or lawsuits against the business. This is a considerable benefit, as it means you do not need to worry about losing your home or savings if something goes wrong with your business. 

Another advantage to starting an LLC pertains to taxes. The Internal Revenue Service (IRS) considers LLCs to be “flow-through” organizations. This means that any profits generated by your business will not be taxed off top–rather, they will flow down to the members of the LLC who will then pay personal income taxes. This is worth noting, as some corporate structures can find themselves taxed “twice.”

When Should You Consider Forming a Corporation?

For some businesses, growth is a primary focus. But how do you fund that growth? Well, by drafting articles of incorporation, you afford your business the ability to issue fractional shares of ownership. By selling these shares, you can raise quick cash to be used on hiring more employees, beefing up your marketing budget, or expanding to a new location. In return, your investors get the opportunity to share in your success.

To incorporate your business, you will need to first check the laws and requirements in your state. Typically, you will need to select a name for your business that is unique from other corporations registered in your state. You will also want to appoint a registered agent–this person will be tasked with receiving all legal correspondence on behalf of your business. With those items decided upon, you can draft your articles of incorporation. This document will require some information about your business, its incorporators, and the number of shares that you plan to issue.

starting a business llc vs corporation

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Whether you want to start a corporation or an LLC, we have the online forms you need. By working with us at Corporation Center, you can process your articles of organization or incorporation online in just a matter of minutes. To learn more about what we can do for you, visit our Frequently Asked Questions page, or contact us by phone or email today.