Reasons Why Limited Liability Corporations Are Preferred Over Corporations for Business Startups

Limited Liability Corporations

Have you given any thought to launching your own company? If this is the case, you must choose which legal structure best suits your needs. Even though there are many other company structures from which to choose, limited liability corporations (LLCs) are often the most suitable option for smaller organizations. If you are considering launching a new venture, you may be debating whether to establish a limited liability company (LLC) or a corporation. Although both have positive and negative aspects, limited liability companies (LLCs) are more common among smaller enterprises than corporations are. These are some of the reasons why:

LLCs Offer Limited Liability Protection for Owners

In recent years, LLCs have become a legal structure for new businesses. One reason is the lower startup costs associated with these organizations than corporations. LLCs are gaining in favor because they have many advantages over corporations. The following are some of the most often cited reasons to establish an LLC rather than a corporation. The fundamental advantage of forming limited liability corporations is the restricted liability it affords business owners. 

When a corporation is incorporated, the shareholders are protected from personal liability for the company’s debts and responsibilities. If the firm goes bankrupt, the owners may have to pay off creditors with their money before using their savings for day-to-day living needs. Because of this, it might be dangerous to establish a firm with a lot of money since creditors may try to seize the owners’ assets in the event of bankruptcy.

LLCs Are Easy To Set Up and Manage

You may have heard that limited liability companies (LLCs) provide the most pleasing mix of limited liability and flexibility if you are beginning a company and seeking the best legal structure to shield yourself from responsibility. This is correct; limited liability corporations are more accessible to establish than corporations and provide their owners more autonomy in day-to-day operations. You should weigh the benefits of an LLC with its negatives to determine if it is the best choice for your organization. 

When you form an LLC, you shield yourself from personal responsibility for business decisions and acts. In contrast, if your firm is a corporation and it ends up owing money, those creditors may be able to go for your assets. However, there are several exceptions to this rule, including situations in which you guarantee a corporate debt or your corporation commits fraud and the creditor pursues you personally.

Limited Liability Corporations Are Less Expensive To Operate Than Corporations

Starting a business may be pretty costly, and the fees associated with incorporating a company can soon pile up. Corporations are required to submit their articles of incorporation to the state and pay yearly fees for their annual reports submitted to the Secretary of State in their respective states. Additionally, companies are required to pay taxes on their profits twice, first as a corporate tax and again as a personal income tax on earnings that are transferred to shareholders. This results in a twofold tax burden for corporations. 

In addition, companies are required to have a board of directors and to have regular board meetings. This necessitates the incurrence of extra-legal expenditures and the amount of time spent planning the actual meetings. Compared to an LLC, a corporation often has less leeway for maneuverability because it has codified obligations that cannot be altered without first adhering to stringent protocols and obtaining permission from the shareholders or the board of directors.

Limited Liability Corporations

LLCs Provide Flexibility When It Comes To Ownership and Management Structures

With an LLC, you may have different ownership and management arrangements. Every stock share in a company has the same voting rights, and there is only one class of stock. There may be as few or as many owners as desired, but consensus must be reached on all significant issues. Because each member of limited liability corporations may cast a vote regardless of how much of the firm they control, a minority shareholder’s wishes can be overridden by the majority’s wishes. 

There must be both a board of directors and shareholders for a company to function, and investors must put up capital before they may vote on corporate matters. The shareholders of a corporation are the legal owners, while the board of directors is responsible for running the business. Officers, including a president, vice president, treasurer, secretary, and others, are appointed by the board of directors to carry out various management responsibilities.

If you’re interested in learning more about why LLCs are preferred over corporations for business startups, call the Corporation Center at (800) 580-4870. We can answer all your questions and help you choose the correct business entity for your needs.