When you choose to take the next step in your business and incorporate, you are faced with a big decision: should you form an LLC or a corporation? With either option, you get limited liability protection to protect your personal assets from your company’s debts and liabilities, as well as various tax advantages. Still, there are big differences between these two types of business entities and your choice will have a big impact on your business. Here’s some information to help you choose between the two.
limited liability company
What is an LLC? An LLC, or limited liability company, is one of the most popular options for small businesses and is basically a pass-through entity, but can also be taxed like a corporation. Many business owners choose to form an LLC because this entity is very flexible; The company’s income can be passed through to the individual members, who pay their share on their tax return, or it can be taxed as a C corporation or S corporation.
LLCs do not have a specific structure or management that must be adhered to. While most people choose to run their LLC with members or owners, they can also choose to form an LLC with a Board of Managers. With an LLC, you get limited liability protection, which protects your personal assets if your business is sued or you can’t pay your debts.
A corporation is often more suitable for a larger business as there are strict requirements to meet. A corporation must have a central management structure with a Board of Directors. Ownership is also very different when a corporation issues stock, which is the same thing. A corporation is also required to have regular meetings, keep and file documents, and keep minutes.
An LLC can choose how it will be taxed, but a corporation will be subject to something called double taxation. This means that business income is taxed at the corporate level and then taxed again when it is distributed to shareholders.
Choosing Between an LLC and a Corporation
There is no one option that is right for every business. However, as a general rule, an LLC is better suited to small businesses and startups as LLCs have fewer requirements and it costs less to maintain and form an LLC while enjoying limited liability. Corporations are usually more suitable for large companies.
The best way to choose between these two entities is with the help of a lawyer, accountants, or a corporate services firm, as the decision is based on many factors related to your business, including your level of risk, business income, and long-term . goals.