llc vs corporation
How exciting is it to finally make the decision to start your new business?
Before you dive in, let’s take a look at the difference between forming an LLC or incorporating your business.
LLC’s and Corporations have some things that make them a lot of like, but they also have things that make them different, and these things could have a major effect on your business overhead.
When it comes to the legalities of business such as ownership, taxes, member and management protections, you’ll want to have the right type of entity in place to keep your business members protected.
Let’s Explore the differences and similarities below.
LLC vs Corporations- Things that are similar
They both provided limited liability. This means the business and all entities of the business are legally separated from the owners and partners of the business. Therefore, any debts, liabilities or assets of the business will belong and dissolve with the business, not the owners. This protects the business owners from losing their own personal property and assets in the event of the business being sued. You do not get this type of protection as a sole proprietor or a DBA.
Both LLCs and Corporations require a Registered Agent. The registered agent is the person or entity that’s assigned to receive legal documents, tax notices and important updates of the laws, on behalf of the business. This is why it’s extremely important to choose your registered agent wisely.
Both must maintain state compliance and regulations. This is done by filing the yearly annual reports. By doing this, the business keeps the state updated on basic information such as the contact info, structure and any changes to the Registered Agent.
LLC’s and Corporations are both required to file and register their business with the state, unlike sole proprietors. This is where we come in, by filing the articles of organization or incorporation of your business, this ensures you are registered with the Secretary of State to do business in the state of filing.
LLC vs corporations- things that make them different
The big one, TAX ELECTION OPTIONS. As an LLC, your business has several options. The single-member LLCs, meaning it’s just you; are taxed that way. So your accountant may suggest, based on your revenue for the year, that you file as a sole proprietorship. The multi-member LLCs are taxed under partnerships because there is more than one member of interest within the business. This is why having an Operating Agreement is important for multiple owners within a company because when it comes to taxes, you want to be sure the responsibility is split fairly. The great news however, is that LLC’s do have the option of changing their election option to an S-corp or C-corp. Speak with your CPA about the right options for your business structure.
Business structure. As an LLC, the members of the LLC usually run the day to day operations. There’s a lot of flexibility on how this structure is ran. As a corporation, the shareholders have the interest of the business, and therefore are responsible for electing the board of directors. The 3 basic officers needed are the President, Secretary and Treasurer.
Formalities of the Business. While LLCs are not typically required to have things such as annual meetings, keeping a meeting minute record and maintaining a level of formality, Corporations usually do. We highly suggest doing these things anyway if the LLC is a multi-member establishment. Having proper documentation will save loads of time, misunderstanding, and frustration in the long run.
so which one is best for your business?
How do you see your business in the next 10 years? Sometimes is best to start at the future vision and work your way back. While LLC’s offer the flexibility that most Small Business Owners enjoy, Corporations provide a solid structure and sound foundation that’s more attractive to potential investors who want their investments protected.
Either way you choose, we’re just glad you’re making the right steps to cover your business and protect yourself throughout the process of growing your business! Here at the Community Business Resource Center, we’re focused on providing optimal help and services for our Small Business Owners while they scale their business.