1. Business Taxation
2. LLC Benefits
3. LLC Drawbacks
4. LCC vs. Corporations
5. LLC Recommendations

When it comes to the advantages of LLC vs corporation, you should know that an LLC is an easier registration process than the corporate process. When choosing the incorporation route, you switch from a sole proprietorship, or general partnership, into a business that enters into corporate status. In essence, it is a legal entity within its own rights, and it is separate from the owners who created the organization.

The new business structure comes in two basic categories: corporation and LLC. The differences between the two entities can get complicated when examining the fine details of both. Such details can be a deciding factor based on your business goals and aspirations.

Business Taxation

One of the most important things to keep in mind is the tax offerings that the entities can offer. For instance, an S corp offers pass-through taxation in the same way as an LLC. By contrast, C corps are taxed at the business level, and shareholders must pay separate personal taxes as well.

A tax classification is what the IRS uses to designate a certain business. The legal entity aspect pertains to how the following systems view your business:

• Courts

• State

• Contractual partners

For instance, a corporation is considered a legal entity, while the IRS designates S corps and C corps as tax entities. With that, an LLC is a legal entity that can choose a certain tax identity. Officials can view LLCs as a sole proprietor/partnership, or as an S corp or C corp.

• **Note: You can get the advice of an accountant or lawyer to help you determine the right business entity for your goals. However, not all lawyers and accountants are aware of current LLC laws.

Regardless of which entity you choose, a business registration will benefit you in the following ways:

• Liability protections that protect your personal assets

• Increased credibility among consumers and business associates

LLC Benefits

An LLC is a business structure that provides personal liability safeguards, including certain tax advantages. An LLC protects personal assets in case a judgment arises against your business. LLCs protect owners, also called members, from being held accountable for the actions of the business.  Such limited liability protections also protect you from personal risk as you conduct business. LLCs and C corps do not have restrictions on owner numbers, or who can own a share in the business.

LLC Drawbacks

Sole-member LLC owners must pay self-employment taxes on income from the LLC and must make quarterly payments to the IRS. With that, LLCs cannot split corporate income in order to lower tax liabilities. Also, LLC owners must ensure they do not pierce the “corporate veil,” which means they must separate business from personal matters.

LCC vs. Corporations

If you choose the LLC option, all income and losses would be noted on your individual tax return. If you must pay taxes, you would pay taxes on a personal level. By default, LLCs are considered pass-through entities, but the LLC can choose an S corp or C corp. C corps come with double taxation, and although it may seem like a major drawback, a C corp option can make financial sense based on your goals.

Single-member LLC owners do not have to file tax returns for the LLC itself because they only report business activity on their personal tax returns. Moreover, S corps come with certain formalities and requirements than an LLC would, and an LLC application only comprises a single page for sole-member LLCs.

LLC Recommendations

Further, LLCs usually abide by recommendations rather than adhering to requirements. Such recommendations include:

• Drafting an operating agreement

• Issuing member shares

• Documenting and holding yearly member meetings (including manager meetings if the LLC is a manager-managed LLC)

• Documenting company decisions

LLC registration costs are also not expensive, usually amounting to $200 throughout the process. Also, you don’t have to contend with as much red tape as other entities, such as with S corps, allowing you to save on accountant and attorney fees.

An LLC also has the full freedom to dispense ownership shares to members without regard to a member’s financial contributions to the LLC, which is a core factor when profits get distributed to members. Certain members may not invest as much funds as other members, but an operating agreement can mandate all members get equal profit shares regardless of contribution. Also, LLCs can have subsidiaries with no restrictions.

Do you have more questions on the advantages of LLC vs corporation? If so,  submit your legal inquiry to our UpCounsel marketplace. UpCounsel’s lawyers will guide you regarding advantages and drawbacks of LLCs and corporations. Also, they will help you determine if an LLC or corporation would be the best fit for your business, including how to maintain the entity of your choosing.