Since about 4.7 million new businesses emerge across the US annually, setting up your business meticulously is a critical step toward success. After all, there’s a lot of competition, and you need to stand out with a rigorous business plan.
Choosing between an LLC or corporation is the first step toward a sound plan. Read on for a comprehensive business structure comparison so you can make an informed and intelligent choice.
LLC Advantages
A limited liability company (LLC) is a business structure where members are not responsible for company debts on a personal level. Each owner of the business is considered a “member” of the business. Any person or entity can be a member besides banks or insurance companies.
Some key features of an LLC include:
- A flexible setup that can be managed by either members or hired managers
- Owned by the members rather than the shareholders
- Members make business decisions independently without relying on shareholders or boards of directors
- Pass-through taxation, in which the business owners pay taxes on the business via their personal taxes
The core benefit of an LLC is that owners can make their own business decisions. They don’t need to go through a board of directors. This lets owners retain as much control over their business as possible and makes decisions more straightforward and streamlined.
An LLC can also have as many owners as they want. They’re ideal for businesses who have multiple people behind the startup idea.
Finally, record-keeping doesn’t have to be as detailed as it does with a corporation. This is because the owners make decisions and don’t need to report on them to the shareholders.
Corporation Benefits
Corporations are legal entities completely separate from their owners. Instead of being run by members, shareholders and their elected board of directors make decisions for the business.
One of the biggest corporation advantages is the legal structure behind how this works.
Unlike an LLC, in which members are legally responsible for the business’s actions, a corporation is responsible for its own actions. Legally, they’re their own entities.
The members of an LLC can be sued for its actions, but shareholders can’t be sued for the actions of a corporation. Instead, those initiating lawsuits sue the corporation itself.
The main benefits of starting a corporation over an LLC are tax-related. The shareholders who own the company are not personally responsible for the organization’s debts. This means they can’t pay off the debts with their personal assets, which protects their finances.
There are two common types of corporations: an S corp and a C corp.
At an S corp, all earnings and debts pass through to shareholders. They are reported on their personal income tax returns. This stops double-taxation from taking place.
In a C corp, the corporation pays taxes on a corporate level. The shareholders also pay taxes on the dividends they get.
S corps are best for small businesses expecting low early-stage profits. C corps are ideal structures for bigger companies with lots of shareholders or complex ownership structures.
LLC or Corporation: Which Is Right for You?
An LLC is best for those who:
- Want maximum control over their business decisions
- Are less interested in meticulous record-keeping and annual reports
- Don’t want an extremely rigid management structure
- Don’t expect much growth within their first year or so
- Prioritize avoiding double-taxation on assets
They’re also ideal for those who want a business that’s easier to set up than a corporation. The process for creating and managing an LLC is pretty straightforward. There are fewer formal requirements, which decreases legal fees and long-term stress.
Corporations are better for those who:
- Think the business is going to grow significantly in their first year of operations
- May want to transfer the business to new owners more quickly (since shares are easier to transfer than LLC membership)
- Want the peace of mind of stronger liability protection
- Run large and complex businesses that need a more formal structure
Neither an LLC or corporation is intrinsically better than the other. Startup owners should choose what works best based on their individual needs. This may sound challenging, but experienced Florida attorneys can help you determine which path is best for you.
The Legalities of Future Business Planning
Before starting a business, sit down with a reputable attorney and discuss your goals. Tell them your specific, measurable business objectives and what you value in a corporate structure.
Legal experts understand the ins and outs of future business planning, so they can help you weigh all options effectively and come to the right decision.
After that, quality lawyers can help you and your co-owners set up the business based on your individual needs. To set up an LLC, an attorney will help you:
- Name the LLC, the first requirement the State of Florida outlines for its formation
- Choose an LLC registered agent to act on behalf of the company
- Prepare articles or organization with the Division of Corporations
- Create a legally-binding operating agreement
- Apply for an employee identification number with the IRS
- Get the appropriate Florida business license
- Handle financing and taxes
Corporate lawyers also help LLCs prepare financial reports every year and file them with the Division of Corporations.
Attorneys can also help you set up a corporation
- Choosing a business name
- Drafting and filing Articles of Incorporation that outline your corporation’s structure and rules
- Appointing initial directors
- Writing bylaws for the corporation
- Appointing a registered agent
- Drafting shareholder agreements
- Complying with all licensing rules
You’ll also:
- Hold a director’s meeting
- Issue stock to shareholders
- Get an EIN
- Open a business bank account
Beyond Business Structure Comparison
Now that you know whether an LLC or corporation is the right choice for your new business, it’s time to begin setting up shop. An attorney can help you make the right business entity choice and ensure that your organization has the tools needed to thrive.
At Boyer Law Firm, we’re committed to protecting new business owners from personal liability by comparing and contrasting business structure options. Our seasoned attorneys are excited to go over your options and help you select the best one to fit your needs.
Our managing attorney has a 10.0 Avvo rating and several certifications and accolades, so contact our team to schedule a consultation and learn more about how we can help.
