Forming an LLC vs. Forming a Corporation

Now that you know that you’re going to register your business startup, you have some decisions to make. Do you want to form an LLC or is forming a corporation the better choice for you? If you use a business registration company to help you with this task, they can guide you through the process but before starting the process, you should have knowledge of each type of designation and how your business could benefit from both.

Limited Liability Company

Let’s start with the LLC. The LLC is the business designation of choice for many small businesses and for any business with a relative simple strucutre who is just getting off the ground. It’s realtively easy to set up because it doesn’t require a large amount of legal paperwork. This also helps to keep the costs of registration at a minimum. The main advantage of the LLC is that it easily seperates the assets and liabilities of the company from the owners. It also allows all income to “pass through” to the owners. This avoids the process of double taxation that arises if your company owns assets that appreciate in value. By “passing through” the liability to the owners, the business is not a tax paying entitiy. If you’re the owner, you will only personally pay taxes on the income instead of personally paying and paying again on behalf of your business.

The Corporation

If your business is more complicated in nature, you may have to consider forming a corporation. If you are planning to seek public funding, you will have to issue stock certificates to investors which can only be one as a corporation. If you have employees and want to issue benefits like health insurance, the corporation allows you to deduct the premiums paid for these benefits before declaring them as income. Although you will gain tax advantages for health care beneifts under an LLC, they aren’t as business friendly as they are under the corporate veil. Finally, if you want to offer your employees stock options, the corporation is essential for this. The corporation designation generally has more paperwork attached to it than the LLC but that is necessary due to the more complicated nature of the business that requires this designation.

Bottom Line

If your business is a small venture that is just starting out, forming an LLC is most likely appropriate for you. For the business that is more complicated, a corporation is most likely worth the time and expense.