Incorporation as a Corporation or an LLC - Which is Right for You?
At some point during the business start-up process, a business owner must decide how he or she is going to structure the business. There can be many ways to do this, but it is generally done in the form of a corporation or an LLC (limited liability company). Before deciding which is right for you and your business, it's important to examine the pros and cons of each.
There are two types of corporations - S Corporations and C Corporations. Basically, the income of an S corporation is not taxed under federal tax laws, whereas an S corporation is. There are a number of advantages to registering a business as a corporation, which include:
There are, however, drawbacks to a corporation. Both S and C corporations require more paperwork than an LLC and are required to file articles of incorporation, hold directors' and shareholders' meetings, keep corporate minutes, and hold shareholder votes on major corporate decisions, which are not required of LLC's.
An LLC, or limited liability corporation, allows business owners to separate their personal identity and financial assets from that of their business. When a company is not incorporated, creditors or partnerships can seize the business owners' personal assets, such as homes, savings, or cars. However, when a business is incorporated as an LLC, only the money put into the business can be seized or lost in the event the business tanks or cannot support itself financially.
In addition, LLCs are not subject to double-taxation, as corporations are. Double taxation occurs when the corporate entity as well as the shareholders' dividends are all taxed.
There are also drawbacks to LLCs. For one, the tax liability for an LLC is different with each state. If your company will be operating in different states, you will have to know how that state handles LLCs before deciding on an LLC. In addition, an LLC is unable to ever go public. If you are an LLC and eventually want to go public, you will have to switch to a corporation.
There are advantages and disadvantages to both corporations as well as LLCs. To determine which is right for your business, it's important to sit down and discuss the pros and cons of each with your attorney.
Search our site for more information:
Rate This Post