Forming a corporation vs. company entity must be carefully considered, as each formation has its advantages and drawbacks.
If you are a start-up, you will find that incorporation can assist you when drawing investor interest. However, creating a limited liability company (LLC) can protect you from personal liability.
You also have to consider taxation, which can overburden you if you set up a C corporation.
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Sub-chapter Corporation vs. LLC – Pass through Taxation
When it comes to reducing taxes, the choice between a subchapter S corporation vs. LLC becomes blurred. LLCs are designed so the owner records his or her taxes on a schedule attached to their personal tax return.
Therefore, you are not subject to double taxation but, instead, can take advantage of a form of taxation that flows down to your individual tax return.
You can also enjoy flow-through taxation when you set up a subchapter S corporation. However, the set-up entails more details and formalities.
Give Me a Call to Discuss You Inquiries – Corporation vs. LLC
I know what you must be thinking. You are saying to yourself, “I’m still confused Sam. I need further details before I decide between a subchapter S or C corporation vs. LLC.” I can help you in this respect. Contact me or my legal staff today to get the information you need. Book a call to speak to us here: https://mollaeilaw.com.
What Are the Takeaways When Forming a Corporation vs. LLC?
You also want to read the following information to help you learn what is involved when forming a corporation vs LLC. Answer the following questions before you decide on an entity.
- Do I want to protect my personal assets (home and autos) in case of a business lawsuit?
- Do I need venture capital funding?
- Do I want to issue shares of stock?
- Do I want to take advantage of flow-through taxation and avoid double taxation?
- Am I willing to go through the formalities involved with corporate setups?
- How much do I want to spend on establishing an entity?
Benefits of Setting Up an LLC
If your main goal is to protect your personal assets, reduce your tax liability, spend less on set-up, and avoid any additional steps when forming your company, you should consider establishing your business as an LLC.
Do You Want to Grab the Attention of Venture Capitalists?
If you wish to play an active part in the stock market, or you want to get the attention of venture capitalists, you may be better off forming a traditional C corporation or designating yourself as subchapter S.
If you choose to set up a subchapter S corporation, you won’t be subject to double taxation. However, you will have to restrict the amount of stock you can issue to 100 shares.
Double taxation means that you will pay taxes on your company’s profits, then will need to pay taxes again on your own earnings, or what you make in dividends off your stock shares. Taxation can cripple some start-ups, so you will need to consult with an attorney to see where you will gain the biggest advantage.
Corporation vs. Company – How Do the Set-ups Differ?
Corporation vs. company? You can decide more easily if you review the set-up processes for both entities. Let’s look at how each entity is formed below.
Steps for Incorporation
- Select a unique business name. Check the Secretary of State (SOS) database first to make sure your name is truly unique, and has not already been taken.
- Register a doing business as name, or DBA name.
- Name a registered agent to receive the incorporation paperwork and to represent you when receiving business or tax mailings after you become a corporation.
- Appoint directors to your corporation.
- File the articles of incorporation.
- Write the corporate bylaws.
- Draft a shareholder’s agreement.
- Hold an initial board of director’s meeting.
- Issue stock.
- Obtain the appropriate licenses and permits.
- Register with the IRS and obtain an tax ID or Employer Identification Number (EIN) for your corporation.
- Open a corporate bank account.
After you form your corporation, you will need to follow certain guidelines with respect to compliance. Otherwise, you can be shut down.
Again, you will need to contact an attorney to help you follow specific guidelines. Email email@example.com to set up a corporation today.
Establishing an LLC
If you want to set up an LLC, the following steps must be taken.
- Select the state where you want to form your LLC. If you wish to have a primary business presence in the state where you live, choose the state where you reside for your LLC setup.
Otherwise, you might consider a lower cost option, such as Wyoming, Delaware, or Nevada. Today, Wyoming is a popular place to form an LLC, as the filing costs are low and companies can maintain their privacy.
- Choose a unique name for your LLC. (Access the SOS database where your LLC is formed.)
- Select a registered representative to receive legal or tax paperwork regarding your company. The registered representative must be on hand during regular business hours Monday through Friday, and must have a street address.
- File the formation documentation through the Secretary of State’s office.
- Create an operating agreement, which can be kept on file at your business. You don’t have to submit this agreement to the SOS. The operating agreement is designed to prevent inner company disputes about how things are handled or maintained.
- Get an EIN and open a business bank account. You will need to get an employer identification number (EIN) first before you open a business checking or savings account. The EIN is an important number, as it serves as your tax ID.
What To Do Next
Are you still debating – corporation vs. company? If so, don’t worry. I can help set up your business so you obtain the best results. My team and I are only an email away when you decide to proceed with your business formation plans.
Book a call to speak to us here: https://mollaeilaw.com. The sooner you contact a legal professional, the easier it will be to set your business formation plans in motion.
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