Finimpact

Pros and cons

Pros

Limited Liability.
Prestige.
Owners retain Control.
Can decide to get taxed as S-Corp.
Easy to Create.
Flexible Management.
Pass-Through Taxation.

Cons

Harder to raise capital.
Dissolves if a member leaves.

Pros and cons

Pros

Limited Liability.
Different stock classes.
Easy to Raise Capital.
Easy to Create.
Huge Prestige.

Cons

Complex management structure.
Double Taxation.
Harder to maintain.

Frequently Asked Questions(FAQ)

Is It Easier To Form An LLC Or Corporation?
It is about the same to form either an LLC or a Corporation. The actual process of filing a document online is quite simple and there is little detail required on the forms. However, you would have to give greater thought to the Corporate Bylaws in comparison to the Operating Agreement of the LLC.
Is It Cheaper To Form An LLC Or Corporation?
Both costs are loosely the same. The costs are determined primarily by your state of operation, not the legal entity structure.
Which Has Lower Taxes, The LLC Or Corporation?
Technically, the LLC has lower taxes as it is only taxed on personal income. You could say that the LLC has no taxes whatsoever, while the Corporation has to pay Corporate tax. However, the question is a little misleading as there are so many tax reductions available, along with the fact that the LLC can elect to be taxed as an S-Corp.
Should I Select An S-Corp Or C-Corp?
These are similar entity types, the main difference is that the S-Corp does not pay tax, similar to an LLC. But the S-Corp limits investment options. There can only be 100 investors, and all from the USA. If you want to limit the investment among a bunch of your friends to run a particular kind of business, the S-Corp can work.
In What Scenario Would I Select An LLC Over A Corporation?
In most scenarios. Choose the LLC when you want to play an active role in your new business without giving too much power away to other parties. It offers more flexibility so you can do what you like. The Corporation comes with a lot of additional responsibilities. You can also just alter the LLC Operating Agreement so that it is run similar to a Corporation if you want.
In What Scenario Would I Select A Corporation Over An LLC?
In very few scenarios. When you are looking for serious outside investment and have big ambitions. Corporations have greater longevity than LLCs, make it easy to transfer shares, and offer huge credibility. At the cost of a more complex management structure.
Should I Hire An Attorney/CPA To Help Me Choose?
Not, unless you want to waste money! You should have a good idea from this guide whether to form an LLC or Corporation. The LLC is superior in most instances unless you have very specific reasons for forming a Corporation. However, you can engage in the services of an attorney or a CPA when drafting the Corporate Bylaws or Operating Agreement. But these services do not come cheap.
Why Not Set Up a Partnership or Sole Proprietorship?
The major reason these two business structures are sub-optimal is liability. You are personally responsible for the business and can lose your assets. You will also find it much more difficult to get a loan or raise capital with a Partnership or Sole Proprietorship.

About the Author

Daniel Lewis

Daniel Lewis

MBA accredited investment professional

Daniel Lewis is an MBA accredited investment professional who wants to assist small business owners to gain access to finance.

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