Starting a business is an exciting and challenging experience. Most entrepreneurs eventually hire help and form either a corporation or a limited liability corporation (LLC) in order to manage their businesses more efficiently. Whether you are starting a business in New York or elsewhere, understanding the difference between these two forms of business entity can help you decide which is the best option for you.

Corporations and LLCs are the two most popular business entities in the United States and the distinction between them is often misunderstood. To help clarify the differences, this article outlines the key differences between corporations and LLCs, explains how each entity is taxed, and provides an overview of registration requirements and considerations in the state of New York. Ultimately, understanding the differences between corporations and LLCs can save you time and effort as you set up your business and help you make the most informed decision about the type of business entity that is best suited to your needs.

What is a Corporation?

A corporation is an independent legal entity that is owned and managed by shareholders. Corporations are separate entities from their owners and the business’s profits go directly to the corporation, instead of the individual shareholders. As such, shareholders are not personally liable for the debts or obligations of the company. This is known as the corporate veil and it is a major benefit of corporations. This means that if the business is sued or fails, its shareholders will not be responsible for any losses incurred, even if theyowned the majority of the corporation’s stock.

When it comes to taxation, corporations are treated as separate entities, meaning they are taxed on their profits. Shareholders are also subject to taxation, though they are taxed based on their profits derived from the corporation. Consequently, corporations are taxed twice, once for the corporate profits and again for the dividends paid out to shareholders. This is known as double taxation and is one of the drawbacks of forming a corporation.

What is an LLC?

A limited liability corporation (LLC) is a type of business entity that provides its owners with limited liability protection, similar to that of a corporation. LLCs are hybrid entities that combine aspects of both a partnership and a corporation. Like a corporation, LLC owners are not personally liable for the debts and obligations of the business and, as long as the owners are not involved in any illegal activities, their personal assets are protected in the event that the business is sued or fails. However, unlike a corporation, LLCs are not separately taxed. Instead, the profits and losses of an LLC are reported on the owner’s personal income tax return and the LLC is not taxed as an entity. This is known as pass-through taxation and is one of the major benefits of an LLC.

Is a Corporation or LLC Right for My Business?

The decision to form a corporation or LLC should not be taken lightly. The answer to this question is largely dependent on your individual business needs. When considering which entity is best for your business, it’s important to consider the differences outlined above and to consult a qualified attorney that understands local regulations in New York. While forming a corporation or LLC can be a complex and time consuming process, UpCounsel’s network of experienced lawyers can help guide you through the process. With UpCounsel, you can find the legal support you need for your business, from a trusted community of attorneys with an average of 14 years of experience.

Overall

Whether you’re starting a business in New York or elsewhere, understanding the differences between corporations and LLCs is essential to making the decision that is right for you. It’s important to consider the various factors outlined in this article when deciding which legal structure to pursue. Additionally, it’s a good idea to seek out qualified legal advice before making any final decisions. With the help of UpCounsel’s experienced lawyers, you can get the support and insight you need for your business.

Topics:

Corporation,

LLC,

New York