When you are in the beginning stages of your business, one of the biggest decisions that you have to make is the type of business structure you should form. There are many options available, but for many new business owners the decision comes down to an LLC or a corporation. There are many benefits to both as well as some disadvantages. Whichever you choose for your business, you cannot go wrong. You should make an educated decision prior to forming your business structure. Use this guide to get started.
LLC stands for Limited Liability Company. Out of all the business structures, it tends to be the least complex, which is why it is a very popular option for business owners. Even if you already have a business in another structure, you may find it easy to convert to an LLC to enjoy some of the benefits. An LLC combines some of the taxation benefits of a partnership or a sole proprietorship with a corporation's limited liability.
A corporation is different from an LLC in many ways. What makes it different from many other business structures is that it is an independent legal entity. This is, however, one of the ways that it is similar to an LLC. By choosing this type of structure, you also get to separate the business from yourself in terms of liability and protecting yourself from the corporation's debt. However, it also allows the business to enter into contracts, pay taxes, and even incur debts separate from you as the owner. Another big component of a corporation is that the business will not dissolve if the owner changes to another owner or if the owner dies.
As with any business entity, there are benefits that can be enjoyed. Knowing what you can gain from the specific types of entities can help you make the right decision.
The structure of an LLC is flexible because owners can override lax laws by building their own set of rules into the operating agreement of the company. In addition to this benefit, there are other advantages such as limited liability and legal protection for personal assets. The following points outline some of the advantages of choosing an LLC:
In addition to the limited liability aspect of a corporation, there are many other benefits you can enjoy when you choose a corporation as your business structure. The following points outline some of the benefits of choosing a corporation:
Just like there are advantages you can enjoy, there are also some disadvantages to consider. Having the full picture of what to expect can help you better prepare for the possibilities that await.
Before you choose an LLC, you need to know what kind of disadvantages you may face as well. Just like with any structure, there are benefits and drawbacks to consider. These are some of the main disadvantages of an LLC:
While there are definitely some advantages to choosing a corporation business structure, there are also some drawbacks. These are some of the main disadvantages:
As you can see, there are benefits and drawbacks to structuring your business as an LLC and a corporation. This is a big decision for your business and one that you should not take lightly. If you are still not sure which way you should go with your business structure, you may want to start by laying out your short- and long-term goals. Once you know what you want the future to look like for your business, you can weigh the advantages and disadvantages of each to determine what works best for your business.
Every business is unique, so you should make sure you are taking into account your unique plans and goals. Just because one may work for another business does not necessarily mean it will work for yours.
Now that you know the details of both LLCs and corporations, you are better equipped to make a smart business decision and set yourself up for success for many years to come. Knowing where to begin is half the battle, and this guide can serve as a good starting point for your business. For more information on what you need to do to start your business, take a look at the legal documents you may need during formation.