Show by Samuel K. Darling, Business Attorney in Everett, WA [Video & Enhanced Transcript] Today’s topic: should I form an LLC (limited liability company) or corporation for my new business? The short answer: both can be the right choice, depending on what you want to accomplish. LLCs are the most popular entity choice available, including when compared to corporations. But corporations do have their advantages. In this video, we’re going to address the high points of the discussion. Brief Mention of Other Entity TypesI should also point out the many other entity structures available aside from LLCs and corporations. You could form a sole proprietorship, a partnership, a limited liability partnership (LLP), or limited partnership (LP). Each has its pros and cons. Sole proprietorships and partnerships have more cons than pros; usually you won’t choose either of those two options. Better to run your business through a limited liability entity of some type, such as an LLC or corporation. In this video, we’re going to focus exclusively on LLCs and corporations, because of their relative popularity. CorporationsLet’s start with corporations and their advantages:
But as I mentioned, there are several disadvantages inherent to corporations:
LLCsNext let’s look at LLCs (limited liability companies). Some people say “LLCs are the best of all worlds.” I can’t agree entirely, but there are many advantages:
The primary disadvantage of an LLC is that it isn’t what the big boys use. If you want to go public or associate yourself with the biggest companies, then perhaps an LLC isn’t the best choice for you. Bottom LineBottom line: an LLC is the better choice for most people and their businesses. But a corporation might be the better choice if:
I should add, you can initially form an LLC and then convert it to a corporation at a later date. That might be how you can truly gain the “best of all worlds”. For more information on related topics, we encourage you to click on the resources tab of our website. Or contact our firm at 866-631-0028 to speak directly with one of our attorneys. Recommended Articles & Videos:
Is it better to start a corporation or LLC?In general, corporations have a more standardized and rigid operating structure and more reporting and recordkeeping requirements than LLCs. LLC owners have greater flexibility in how they run their business. Taxwise, LLCs have more options than corporations.
What is better for taxes LLC or S Corp?LLCs. As an LLC owner, you'll incur steep self employment taxes on all net earnings from your business, whereas an S corporation classification would allow you to only pay those taxes on the salary you take from your company. However, itemized deductions could make an LLC a more lucrative choice for tax purposes.
Why choose an LLC over a corporation?You may prefer an LLC if you: want a high degree of management flexibility in running your company. want to allocate profits and losses based upon criteria other than ownership percentage. prefer to avoid the state-mandated requirements imposed on corporations, such as annual meetings.
What is the disadvantage of an LLC?Disadvantages of creating an LLC
States charge an initial formation fee. Many states also impose ongoing fees, such as annual report and/or franchise tax fees. Check with your Secretary of State's office. Transferable ownership. Ownership in an LLC is often harder to transfer than with a corporation.
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