Introduction
If you’re like most entrepreneurs, your business is your baby. You’ve toiled and sweated over it for months, if not years. You’ve put in long hours and given it a lot of thought. And now that the time has come to go from idea to action, a question arises: what kind of company should it be? There are several options out there, including C Corporations, S Corporations, LLCs (limited liability companies), LLP (limited liability partnerships) and more. In this article, we’ll show you all you need to know about starting a business LLC vs. a corporation.
What Is An LLC?
An LLC is a type of business entity. It’s a hybrid between a partnership and a corporation, which means that the owners of the business must meet many of the same legal requirements as either one.
An LLC has two types of members: managing members and non-managing members. A manager can be an owner, officer, or employee who makes decisions for the company. The other partners are called non-managing members. They can also be owners or employees, but they don’t have any managerial authority over the company itself, like managers do. The manager will usually file all licenses, pay all expenses incurred during operations (such as taxes), and submit paperwork to state agencies if necessary in order to keep it running smoothly throughout any given year.
What Is a Corporation?
A corporation is a legal entity that is separate from its owners, who are called shareholders. It can have its own legal rights and obligations, enter into contracts, sue or be sued in court, and pay taxes. A corporation also has directors and officers who manage those assets, and creditors to whom it owes money. Although other business structures come with some level of liability protection as well—such as LLCs and partnerships—corporations generally offer more than those two options do.
The main advantage of forming a corporation is that it offers limited liability protection for the owners—meaning that if your business ends up being sued for any reason, only the assets of the company will be at risk.
What Are The Benefits Of Forming A Corporation?
There are many benefits to forming a corporation, including the following:
Members of an LLC are not authorized to sell their membership interests until certain criteria are met (for example, if another member offers to buy them out). Shareholders of corporations can sell their shares at any time.
Ownership structure and transferability: Corporations allow for more complicated ownership structures than LLCs do, such as multiple shareholders who each own different percentages of shares in the company (known legally as share classes). These shareholders‘ rights can also vary depending on their share class type; some may have more voting rights than others depending on what kind of shares they own, while others may have no voting rights at all depending on whether or not they bought preferred stock instead of common stock when they first invested in your company. Also worth noting here: since corporations have stricter requirements around transferring ownership interests in order for legal purposes (and because it makes sense), there haven’t yet been any cases where someone has challenged them like there were when LLCs first came out; this could change someday though, so keep reading about upcoming news.
Corporate vs. Personal Assets
If you are an owner of a corporation, your personal assets are not protected if your company gets sued. This means that in the event of a lawsuit (or even bankruptcy), creditors can take everything you own.
On the other hand, if you’re an owner of a limited liability company (LLC), this will not happen as long as it is set up correctly. In fact, one of the biggest benefits of creating an LLC over forming a corporation is that it helps shield your personal assets from being seized by creditors.
Double Taxation of Corporations
While the double taxation of corporations may seem like a disadvantage, it is not always true. Corporation owners can deduct the money they put into their businesses from their personal income, which is why many people choose to incorporate. This means that the money they make from dividends and other distributions is taxed at a lower rate than regular income.
In addition, if you are planning on making passive income in your retirement years (such as from rental properties), then incorporating may be advantageous because you can pass along wealth to your heirs without incurring estate taxes.
To Summarize…
There’s a lot to think about when it comes to deciding how to set up your business. But now that you know the basic differences between an LLC and a corporation, you can make the decision based on what makes the most sense for your business and personal goals.
For business owners in all 50 states, we provide a variety of online forms. We can help you form a limited liability company, a limited liability partnership, or an S-corporation, depending on your needs. You can safely submit your articles of incorporation in just a few minutes by using our simple-to-fill forms and SSL-encrypted web interface at Corporation Center.
