If you have been debating how to form your business, you may be weighing the advantages or drawbacks of a corporation vs LLC. That is understandable, as both entities can help you gain a competitive edge, depending on your professional or business objectives.
I can also help you decide which entity will work for you. Send me an email at firstname.lastname@example.org to arrange a consultation. In the meantime, review the information below and familiarize yourself with the details of choosing a corporation vs LLC.
To learn more about a corporation or LLC, you have to define each of these types of business formations first. The following information will give you a basic overview of each type of company.
Corporation vs LLC – What are the Basic Differences?
When reviewing a corporation vs LLC, an LLC is short for a limited liability company. Don’t confuse it with a corporation by calling it a limited liability corporation.
A corporation is a type of business that is separated from its owners or shareholder. Some owners may be employees or executives. They pay themselves as employees for the tasks they assume.
They also receive shareholder dividends. This subjects them to double taxation.
A traditional corporation is set up as a C Corporation for tax purposes. If you want to avoid double taxation, you should establish a subchapter S corporation. An LLC, or limited liability company, is different than a C Corporation, as it features pass-through taxation.
The taxes for a multiple-member LLC or single-member LLC pass through the business and are filed by each of the LLC members on their returns. However, if you want to enjoy pass-through taxation as a corporation, it is possible.
Subchapter S Corporations are set up so double taxation is avoided. The profits and losses also pass through the business and are recorded on individual tax returns.
To further understand the differences of a corporation, subchapter S corporation, and LLC, let’s explore their formations in further detail.
An incorporated business is distinct from the owners. It is formed using the Articles of Incorporation. These articles are established under the laws of the state where the business wishes to incorporate it. This information is needed to register the company in the state.
In turn, the state needs to know the company’s purpose and who will be running it. If a corporation is formed, the state also requires the business to submit stock information.
The following information should be included in the Articles of Incorporation:
- The name of the company (This should be checked to avoid duplication with a state’s company name database)
- The name and address of the registered agent – the person who receives business formation paperwork and other legal documents on behalf of the corporation or company
- The type of corporate structure – such as a professional corporation, non-stock corporation, nonprofit corporation, or profit corporation
- Contact information for the Board of Directors
- The duration for the corporation, if it is not created to continue after the owners retire or die
- The contact information and name of the company’s incorporator – or the person who sets up the corporation
While a state requires that the articles of incorporation state the company’s purpose, this definition can be broad to encourage operational flexibility.
Many states in the US assess filing fees for incorporation, whether or not the business operates in the state of incorporation. If a business incorporates in one state and does business in another, it must register in both states.
Fees for incorporation vary, depending on whether the documentation is filed online or is submitted through postal mail. Besides filing fees, franchises may have to remit a franchise tax.
I can assist you with filing the Articles of Incorporation for incorporating your business. Contact me today to schedule a time to arrange a consultation. Shoot me an email at email@example.com.
Note: You can also preview a good video on the IRS website about forming a C Corporation. Watch the video first before speaking to me. Again, you can reach me via my email at any time at firstname.lastname@example.org.
Reporting Business Income
You can also learn more about reporting business income by watching this IRS video. I can also watch the video with you and answer any questions or concerns.
Subchapter S Corporations
Subchapter S corporations provide an alternative to filing Articles of Incorporation for the C Corporation or traditional corporation.
According to the Internal Revenue Service (IRS), S Corporations are incorporated businesses that enjoy pass-through taxation, with the reporting of corporate income taxes passing through to the shareholders. Shareholders report income and losses on their tax returns.
Meeting the Criteria
Pass-through taxation permits S Corporations to avoid double taxation. To qualify for this type of business formation, a company must meet the following criteria:
- The corporation must be US-based
- The corporation can only have up to 100 shareholders
- The shareholders may be individuals, estates, or certain trusts
- Shareholders cannot be corporations, non-resident aliens, or corporations
- The corporation cannot be certain financial institutions, a US-based international sales corporation, or an insurance company
To become an S Corporation, the company must submit an IRS Form 2553 that is signed by all the shareholders. I can assist you with the filing. Send me an email to have your questions answered and get help with submitting the form.
Limited Liability Companies
A limited liability company (LLC) is a US type entity that features pass-through taxation. Owners are not responsible personally for the business’s debts or liabilities.
This type of entity is a hybrid entity that combines the characteristics of a corporation with those of a sole proprietorship or partnership. I can help you set up this type of business. Just contact me by email at email@example.com today.
Corporation vs LLC – What to Consider When Selecting a Business Entity
When reviewing the advantages of a corporation vs LLC, you need to take special note of certain factors first. These factors include the following:
- What is the start-up cost and how easy is it to establish the corporation vs LLC?
- How is a business registered?
- What type of ownership control will the business feature? In other words, how does the business owner get paid from the company?
- How are taxes paid?
- What is the liability for debt or possible lawsuits?
As you can see, the above questions are worth answering. They can help you more clearly define the differences and likenesses of forming a corporation or LLC.
I can assist you in making distinctions when choosing an entity. Contact me at firstname.lastname@example.org for further details today.
Corporation vs LLC – Which Type of Business is For You?
When reviewing a corporation vs LLC, you need to figure out which entity is best suited for your business and operational needs.
How Incorporation Helps
From a benefits standpoint, a business that is incorporated can do the following:
- Enter into its agreements.
- File and submit its taxes.
- Be distinct from the owners.
- Open and use its bank account.
A corporation can also protect shareholders from business-related liabilities.
The Structure of the LLC
The LLC also features corporate- type liability protections. It features some partnership and corporation traits. LLC owners are called members – each of whom is not personally liable for business debts or obligations.
Unlike a C Corporation, an LLC is not directly taxed. Profits and losses pass through the business to the LLC members. The members report this information on their tax returns.
An LLC is an ideal business for start-ups or small business owners who do not need to raise much capital but need to be protected against liability. Most of the small businesses that have been started in the last ten years have been LLCs.
Forming an LLC is simpler than when you incorporate it. However, you probably will pay about as much in filing fees. Articles of Organization should be filed in the state where you do business. Also, a notice of the LLC formation should be listed in the area newspaper.
LLC owners should create an operating agreement for their company. This contract displays each member’s interests and rights.
When registering the business, you also need to apply for the required licenses or permits.
While LLCs are easy to form, they also require ongoing formation expenses. On the other hand, a C Corporation or S Corporation requires more paperwork for registration. Corporations can be costly to establish.
A C-Corporation is subject to double taxation while an S Corporation or LLC features pass-through taxation. You can also interest venture capitalists in supporting your business if you incorporate it. You don’t have this type of advantage if you are set up as an LLC.
What To Do Next
By reviewing a corporation vs LLC operation, you can more easily choose the right entity for your business. I can help you decide on a company formation and help you choose a business name.
Contact me at email@example.com so you can learn more about the company formation process.
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