A business owner can choose to make their business either a corporation or a LLC to limit potential personal liability. Limiting liability protects the owner if the business develops debts it cannot pay. Otherwise, aggressive debtors can seek repayment through the owner’s personal assets, including bank accounts, homes, and cars. If the business is a corporation or a LLC, then the owner’s personal assets cannot be sought as payment, allowing their home lives to remain stable regardless of business volatility.
Although both corporations and LLCs similarly protect their owners from personal liability, there are many differences between the two that best suit different needs.
A corporation is made up of shareholder(s). It is considered to be its own legal entity, with many of the same rights and privileges afforded to it as an individual. The shareholder(s) share in the profits of the business through dividends and appreciation but are never held personally liable for the business’s debts. A corporation may have just one shareholder or many depending on the business’ size and is created through filing Articles of Incorporation. The shareholders buy into the corporation by purchasing the corporation’s stocks. A corporation is required to file its own taxes and have a board of directors.
A LLC, or limited liability company, is made up of member(s) and is not considered its own entity in quite the same way a corporation is because while it is a legal entity, it is not its own tax entity for IRS purposes. The members of the LLC can list the business’s profits and losses on their own personal taxes or choose to have the LLC taxed similarly to a corporation. A LLC can also have just one member or multiple, but typically not as many as a corporation has shareholders. Further, a LLC does not issue stock and isn’t required to have a board of directors. A LLC is formed by filing Articles of Organization.
Incorporating or organizing is a wise choice for many business owners because, although no one ever wants to imagine a worst-case scenario, protecting yourself and your family from financial mishaps is always the right move. However, properly setting up a legal entity isn’t as easy as it seems. The best choice for most is to hire an experienced attorney to guarantee a smooth transition, industry-specific advice, successful formation, and no-stress maintenance.
While other, non-legal options exist that claim to help with incorporation and organization, only an attorney can give the legal advice that is necessary to ensure successful operation. Forming a corporation or LLC not only involves filing all of the necessary and often-confusing paperwork but also making sure that the entity is set up to run smoothly in the long term. Often, many issues can arise, such as:
- Should I incorporate or become a LLC?
- In what state should I file my paperwork, and can I do so in more than one state?
- If I incorporate, should I become and S or C Corporation?
- How do I choose a board of directors, and what do they do?
- How can I get paid as the owner?
- How do I issue and protect my stock?
- What are the differences between big business and small business incorporation?
- How do I file corporate taxes?
- If I can, should I file my business taxes on my personal return?
- What are S corporation election forms, and do I need them?
- How do I establish succession rights?
- What is a Registered Agent?
- …and many more!
Please give us a call at 855-345-3867 to set up an appointment to discuss how we can assist you with entity formation. Or, to start the process now, please click on the “ORDER” link to complete the online formation questionnaire.