Business owners deciding between LLC Inc types have many options within the incorporation umbrella. You have to take many factors into consideration when you are determining which business structure you want to form.

Which is Better for Your Business: Incorporation or LLC

All business owners have different goals, and they are not always one size fits all. The same concept is true for incorporating. All corporation types are different based on your own business strategy, so you need to carefully consider the differences in each when making a decision. Many business owners can sometimes feel confused as to which corporation type they should choose.

It is best to get a full understanding of the different options, although it can be overwhelming for new business owners. There are some different points to consider when you are contemplating between starting an LLC or a corporation:

  • A new business owner can often get incorrect advice when choosing between LLCs and corporations.
  • They are both formed by filing the proper paperwork with the state. They also both serve to protect the owner’s personal liability should a lawsuit against the business occur.
  • The two business structures are taxed differently.
  • They are two completely different operations with different requirements for taxation.

Whether you choose an LLC or a corporation, you will still appear more legitimate than a sole proprietorship or partnership. Take some time to determine what your goals are for your business long-term to help make your decision.

Keep in mind that all corporations are not the same. Making the decision among all your options is going to get your business started off on the right foot. It is also going to serve as the foundation of the business’s overall growth and success. When you are thinking about your options, it is best to really consider your goals for the future of your business.

Incorporation: Overview

When you decide to incorporate a business, you are emerging from a sole proprietorship or a partnership into a full-fledged company that will be officially recognized by your state. It will become a business completely separate from you, the owner, and can stand as its own legal entity.

Your new company structure will be in one of two different categories, which are limited liability companies (LLC) or corporations (corp.) Despite your choice, there are benefits to both options that you will appreciate. You will be shielded personally from the liability of the business. You will also enjoy establishing better credibility with your clientele.

There are several advantages and disadvantages to both types of incorporation. Business owners take the taxation of a business strongly into consideration when deciding between an S corporation and a C corporation.

An S corporation is considered a “pass-through” taxed entity, similar to LLCs. A C corporation is taxed separately and on its own. It is also taxed twice if your C corporation distributes payments as dividends to shareholders.

A C corporation has to pay taxes on all profits made. The owners are then taxed an additional time on their dividends. This is how the double-taxation occurs.

Incorporation Advantages

There are some advantages of incorporation to consider:

  1. Incorporations are allowed to issue stock shares to help entice investors.
  2. Splitting corporate income can help decrease the overall tax liability.

Incorporation Disadvantages

There are some disadvantages you need to consider as well:

  1. A C corporation requires double taxation.
  2. You must hold meetings annually and record the minutes.
  3. S corporations are restricted in how many can own the business.

LLC Advantages

LLCs have many advantages that are attractive to business owners:

  1. LLCs protect the owners of the business, also known as members, from personal liability.
  2. The owner is protected from potential personal risks in the event of a lawsuit against the business.
  3. LLCs provide flexibility in the management structure. Corporations have firm rules on the management of the business when it comes to decision-making.
  4. LLCs offer pass-through taxation, which eliminates the need to pay taxes at the business level.
  5. Income and loss are reported on your personal tax return. You will pay taxes due on your own return.
  6. You can have as many owners as you want.
  7. You do not need to hold annual meetings or keep minutes.

LLC Disadvantages

In turn, there are also some disadvantages to consider:

  1. You cannot lower your tax liability through corporate income splitting.
  2. You may not issue any stock to owners.

If you need help with LLC inc formation, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law, and average 14 years of legal experience, including work with, or on behalf of companies like Google, Stripe, and Twilio.