5 Things to Consider when Choosing Between a Corporation and an LLC in Los Angeles
When running a business in Los Angeles, entrepreneurs often face the tough decision of whether to form a Corporation or LLC3 min read
When running a business in Los Angeles, entrepreneurs often face the tough decision of whether to form a Corporation or LLC. Utlimately, the entity type you select for your business may have significant tax and other legal consequences down the road, so it’s important to understand what is involved in each type of business structure. To help with decision making for business owners in Los Angeles, here is a look at five of the key factors to consider when selecting between a Corporation and an LLC.
1. Limited Liability Protection Benefits
One of the biggest advantages to both Corporation and LLCs is that they both provide business owners limited liability protection. Under each of these entity types, business owners are insulated from personal liability associated with the company's debts or obligations. This means that if the company gets sued or has other financial obligations, the business owner's personal assets should be protected from creditors. The limited liability is a key factor to consider when looking at each of these business structures.
2. Social Responsibility
Another important factor to consider when selecting between a Corporation and LLCs in Los Angeles is the social responsibility each type of entity offers. With a Corporation, there is a greater potential for social responsibility—including corporate giving initiatives, scholarships and environmental sustainability projects. It is also easier to access capital markets and take advantage of certain employee benefit plans. On the other hand, LLCs have more limits to their social responsibility initiatives and their ability to access capital.
3. Ownership Structure & Control
Additionally, it is important to consider how the Corporation and LLC ownership structures and control differ. With a Corporation, ownership is typically established by issuing stock certificates and control is left to a board of directors. With an LLC, ownership is established by the operating agreement and control is usually left to the members of the LLC. It is also important to note that with a Corporation, all of the members are not necessarily involved in management or control of the company, whereas with an LLC, all members may have an active role in the management and control of the company.
4. Taxation Structure
Another key factor to consider when selecting either a Corporation or LLC is their respective taxation structures. With a Corporation, businesses will be subject to double taxation, meaning that the Company is taxed on its profits and dividends are also taxed when they are distributed to the owners. On the other hand, with an LLC, the profits and losses of the business “pass through” to the owners, who then report them directly on their personal tax returns. This pass-through taxation structure avoids the double taxation that occurs with a Corporation, which could lead to significant tax savings.
5. Complexity & Flexibility
Finally, the complexity and flexibility associated with a Corporation versus an LLC is another key factor to consider for business owners in Los Angeles. With a Corporation, the paperwork is usually quite extensive and the regulations are often more involved than with an LLC. But at the same time, Corporations provide more flexibility when it comes to making corporate changes. On the other hand, LLCs tend to be more flexible when it comes to changing ownership structure and filing corporate tax returns.
When it comes to making the decision between a Corporation and an LLC for businesses located in Los Angeles, there are many factors to consider. From the limited liability protection benefits to the taxation structures and complexity, each entity provides different benefits and drawbacks for the business owner. Ultimately, it’s important to consult with a qualified business lawyer and carefully evaluate all of these factors to help make the best decision for the business.
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