LLC or Corporation: what is your best business structure?
Starting your own business is one of the best things you can do. It can also be one of the most confusing things to do, especially when deciding if your business should be registered as an LLC or a Corporation.
Here’s a breakdown of the two to help you make your decision.
LLC (Limited Liability Companies)
An LLC can be owned by one person, also known as a single-member LLC, or by multiple owners, known as a multi-member LLC. An LLC consists of a contract between owners specifying how the business will be run and the profits, and the costs will be shared.
LLC doesn’t require you to keep as many records as other business structures. You are also not required to have a board of directors or to have annual meetings and reports.
Taxes are a bit more flexible for an LLC. You are allowed to report all income or losses on your personal taxes.
Features of an LLC:
- Simplifies taxes
- Protection against lawsuits
- Establishes your business as legit
Corporations are an agreement that control and ownership can be separate. Owners are known as shareholders, and they may not be involved in operating the business or be heavily involved in the day-to-day operations. Shares track ownership of the company. Each share corresponds to a predetermined amount of control of the business and the entitlement of profits.
Corporations need to have a board of directors and hold an annual shareholder meeting. They must file a yearly report with any updates to the secretary of state with any changes within the business.
Taxes can be a bit more complicated, and corporations face what is known as “double taxation” the business pays taxes. Then, the shareholders will claim personal taxes from the profits received from the company.
Features of a Corporation:
- Corporations provide limited liability
- Corporations must pay corporate taxes on their profits
- Shareholders are taxed separately if the company pay them a salary or distributes dividends to them
Which one should you choose for your business?
When deciding which path to go down when registering your business, you should consider your long-term and short-term goals. Do they line up better with one business structure than the other?
Another thing to consider is the type of business you have and what business structure makes more sense.
An e-commerce store is a smaller business, and registering as an LLC can be more practical and less complicated.
Whereas a tech startup would benefit more from a corporate structure. Registering this business as a corporation will make it easier to raises capital by bringing on investors and having the roles of shareholders and owners more defined. This is a decision that you need to put a lot of thought into and sh