When you’re setting up a new business, you’ve got many decisions to make. However, one of the most important is choosing the right structure for the business. You have to choose from a sole proprietorship, partnership, limited liability company, and corporation.
The good thing is you’ve already narrowed down to between LLC and corporation. Which is the right structure for your business?
If that’s what you’re wondering, you’ve come to the right place. Continue reading to learn whether to choose LLC or corporation as the best structure for your company.
Level of Liability Protection You Need
When choosing between LLC and corporation, the biggest factor to consider is the level of liability protection you want.
Both LLC and corporation offer great liability protection, but it’s the corporation that wins out. A corporation is a legal entity owned by shareholders. The shareholders can not be held accountable for the liabilities of the organization. This is to say, if the corporation defaults on a loan, the creditors cannot come after the personal assets of the shareholders.
Just like a corporation, an LLC is also a legal entity that’s separate from its shareholders. If the LLC has debts, no one will come after your personal assets, unless you personally put them up as collateral.
The major difference between an LLC and a corporation in terms of exposure to liability is in the ownership model. In an LLC, you’ll be listed as one of the owners. In a corporation, you can elect to use another company as a shareholder.
An LLC is a great structure when you want to make the most of tax benefits. Known as a pass-through entity, LLCs don’t pay federal taxes on their income. It’s the owners who will pay tax on the income they earn from the operations of the LLC.
When it comes to a corporation, how you get tax benefits isn’t so straightforward. A lot will depend on whether the organization is a C or S corporation.
C corporations have double taxation, which means the company will pay tax on its income, and the shareholders will pay tax on their dividend income.
However, it’s possible to make your corporation a pass-through entity. You just need to set it up as an S corporation, though you’ll need to get the green light from the IRS.
Ease of Formation
Sometimes you just want to set up a company quickly and without spending a lot of time. The structure you choose will have an impact on how quickly you can get started.
When comparing an LLC to a corporation, it’s the former that’s easier to create. See more here to find out what you need to set up an LLC.
That being said, both structures can be easy to set up, as long as you’re working with a business formation expert.
LLC or Corporation? It’s Your Choice
So, LLC or corporation? Both structures have their advantages, as well as a fair share of advantages. It all depends on your needs. If you want great liability protection and your goal is to set up a big business, go with a corporation.
Keep reading our blog for more business tips and insights.