If you find yourself drawn to the call of entrepreneurship, you are likely driven by a sense of ambition. While your business idea may require modest beginnings, you surely plan on growing it into a sprawling, successful enterprise. In order to get to that stage, the decisions that you make in the early days of your planning are important. One question in particular that you will want an answer to is, “Should I start an LLC or a corporation?”
While it may seem basic, how you structure your business can play a major role in how you shape your organization. Matters of ownership and taxation can greatly dictate your growth and day-to-day management style, so you will want to give them a fair amount of attention. Before you settle on a Limited Liability Company (LLC) or a corporation, it is paramount that you understand the pros and cons of each.
Corporations: Pros and Cons
On a fundamental level, a corporation is a business that functions as its own legal entity. Corporations can be owned by individuals and that ownership can easily be transferred via the sale of stock. Because a corporation is its own entity, owners can shield their personal assets from liability.
An advantage to forming a corporation is that it provides an easy avenue for raising capital. By issuing stock, you can quickly generate cash to put back into your business. Another benefit to creating stock is that it allows your business to exist in perpetuity via ownership change.
There are, however, some drawbacks to forming a corporation. They are subject to strict regulations, and you will have to adhere to a fairly rigid management structure. You will also need to create annual reports, hold board meetings, and maintain a board of directors. In most states, the application process can also be complex and lengthy. For this reason, working with a service such as ours at Corporation Center may be beneficial.
Why a Limited Liability Company Can Make Sense
Limited Liability Companies are available in all 50 states, and due to their ease of formation, they maintain a high level of favorability among business owners. In an LLC, you will receive limited liability protections as a member–not dissimilar to those you would receive as an owner of a corporation. More specifically, members can shield themselves from legal judgments against the business.
There are also tax benefits to forming an LLC. Treated as a “flow-through” entity by the Internal Revenue Service (IRS), LLCs do not have to pay taxes directly on their profits. Those funds instead pass through to the members who will pay a personal income tax.
A significant drawback to creating an LLC is that they are not particularly conducive to attracting investment. As anyone who invests in an LLC would want an ownership stake, they would have to become a member, which calls for a fair amount of paperwork.
File Your Articles of Incorporation Online Today
Whether you decide to form an LLC, or are interested in filing Articles of Incorporation, we can help. We have a host of online forms for business owners in all 50 states. To learn more about our services, contact us by phone or email today.