Starting a corporation or an LLC may be a vital step when expanding your company. However, it is not always obvious what steps are involved in the process or what advantages would result from creating a group. This article will cover some of the things you need to be aware of before forming a corporation or limited liability company (LLC). In addition, we will discuss the benefits and drawbacks of each alternative, allowing you to choose the most suitable organizational form for your company. If you are considering forming a corporation or limited liability company, here are essential things you should know before you do so:
Starting a Corporation or LLC Offers Personal Liability Protection
You receive more than just a business card when you consider starting a corporation or an LLC. You’ll be safe from lawsuits and creditors, too. It is possible to sue you personally for business actions. This is problematic for several reasons, including the fact that it increases operational costs, slows down productivity, and adds unnecessary stress while running a company. Therefore, you (and not your organization) are accountable for the consequences of your actions, whether they include manufacturing, selling, or even simply saying the incorrect thing.
However, this liability protection only applies when you incorporate or create an LLC and only if your business is structured correctly and registered. People have formed corporations and limited liability companies for generations to shield their personal assets from business debts. Today, big and small firms often form corporations because they have better access to financing than a sole proprietorship.
A Corporation Can Have Shareholders
A corporation or limited liability company will provide your firm the legal protection and operational framework it needs to thrive. One option for doing this is to offer stock in the firm for sale. Consider this carefully before launching your company. In a corporation, shareholders may participate in decision-making in two significant ways: voting members or non-voting members. You should also consider whether you want other people to invest in your business and whether they should have a say in critical decisions.
This may not be required in cases when a small firm is run almost entirely by members of the same family (including the top management positions). However, voting shareholders (those who can vote on significant decisions) might be helpful for more prominent firms with several layers of management and workers, mainly to prevent sudden and drastic changes in leadership in the event of an employee’s departure or death.
A Corporation Can Have Employees
Having staff in a corporation allows you to delegate tasks to others so you can concentrate on managing the company. Since operating a company is time-consuming and complex, this is welcome news. As a small company owner, you probably switch between various daily roles. One day you may be in charge of sales, customer service, and accounting; the following, quality control and inventory management; and finally, public relations and graphic design.
When you’re running a business, you may delegate specific responsibilities to other individuals so you can concentrate on overseeing the company as a whole. There’s more to it than just outsourcing tasks, however. As the law recognizes corporations as independent entities, corporations are afforded the same legal protections as natural persons. If your business incurs debts, only the business’s assets (not your own) will be in danger, meaning you won’t have to worry about losing your house or vehicle.
An LLC Is Simpler And Less Expensive To Set Up Than A Corporation.
Setting up a limited liability company, or LLC is easier and cheaper than incorporating a business. Articles of incorporation must be filed with the secretary of state, and legal assistance is available if you don’t feel comfortable handling the paperwork alone. Forming a company needs extra paperwork, money, and time to register with both state and federal authorities. In addition to the increased tax reporting obligations, the number of business-related laws and regulations has increased.
Having a corporation establishes a wall between your personal and corporate finances, protecting you in the event of business failure. If you are sued over a business disagreement or anything else goes wrong, you don’t want to lose all you possess. Thus this is something to consider. However, this is usually unnecessary and not worth small enterprises’ added expense and legal headache. And if it turns out to be a problem, it’s simple to implement a solution (e.g., by converting your LLC into a corporation).
Call Corporation Center at (800) 580-4870 for additional information on creating a corporation or limited liability company in the quickest, easiest, and most secure manner possible. If you need help getting your company off the ground, our helpful staff is here to help.