Personal Corporation vs LLC: Everything You Need to Know
A personal corporation vs LLC: which is the better option for you? 3 min read updated on January 01, 2024
Personal Corporation vs LLC
A personal corporation vs LLC: which is the better option for you? It can be confusing on which to opt for when setting up your business unless you have all the information about both options.
S Corp vs. Professional Corp vs. LLC
A professional corporation, an S corporation, and an LLC have many similarities as well as differences. Although S corporations and LLCs are some options to choose no matter what industry or products you sell, a professional corporation is restricted to specific licensed professions. This is why that choice may not be available to you.
No matter if you are just starting out as a business or if you are considering changing your business model, a typical first step is comparing an S corp with an LLC. While a limited liability company and S corporations have some of the same qualities, they also have many differences. You should be familiar with all of these before moving forward.
What is Incorporation
When you decide to incorporate your business, you are emerging from a sole proprietorship or partnership into a company that will be formally recognized by the state in which it was incorporated. It will become a legal business entity all on its own and separate from those who founded it.
A new company structure will typically fall into two categories:
· A corporation
Not all incorporation choices are the same. When you are deciding between a corporation and a limited liability company, you need to consider the best choice for your type of business so that you begin on the right foot. It will also act as the foundation for the ongoing success and growth of your company.
A professional corporation is an option for specific occupations. This type of structure is for accountants, lawyers, engineers, architects, and those in the medical profession. While professional corporations do not provide the same amount of personal liability protection of S corporations or limited liability companies, they do offer protection for suits filed against other associates.
The professional corporation has to be approved by the state agency that licenses the specific profession. Professional corporations do not protect you against a malpractice suit, but do reduce your liability for any claims that are directed at your associates. A professional corporation is only one type of corporation. It is a streamlined type of corporate organization. It allows professionals in that particular industry more control over the operations of the corporation.
A licensed professional that wants to incorporate a practice may form a professional corporation, while the shareholders, directors, and the officers have to be in the same type of profession.
A professional corporation is not as popular as it used to be. This is due in part to the tax law changes. An LLC is also easier to run. All states will vary with regard to the type of professions that are required to incorporate as a professional corporation. Most states include the following:
However, there are some exceptions. Many states will provide professionals a choice. They may incorporate as a professional corporation or as a regular corporation. In every state, certain professions have the option to form a professional corporation.
There are some advantages and disadvantages of a professional corporation. If a professional decides to retire or leave the business, the ownership can be transferred to the others. The professionals may also share all management responsibility and any profit without the concern of being liable for the malpractice of the others actions. However, the flat corporate tax rate for professional corporations can limit the growth of a business.
An S corporation is very similar to an LLC. The profits in an S corporation are distributed to the stockholders. They will then add these profits to their own personal income tax returns. S corporations are similar to the other types of corporations with the exception of taxation.
There are some other corporate requirements. They must hold regular management meetings for example. This has to happen whether the business is a single stockholder company or a large company.
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