When starting a business, it is important to establish the entity of that business. There are four major business entities in the United States including Sole Proprietorships, Partnerships, Limited Liability Companies and Corporations. For the purposes of this article, we will focus on the similarities and differences between Limited Liability Companies, often referred to as LLC’s, and Corporations.
Taxes: The method of taxation is a major difference between an LLC and Corporation. Corporations are taxed as entities before their shareholders are taxed as individuals. This is called double taxation. Meanwhile, LLC’s avoid double taxation because LLC’s are not taxed as entities. Instead, each shareholder will report their own profits and losses for individual tax purposes. This is called pass through taxation. In general, the pass through method of taxation is considered more favorable over double taxation simply because this means that less money is spent in taxes.
Structure: Corporations are known for a rigid governing structure that involves board members, officers, employees, and shareholders. Meanwhile, an LLC is known for structural flexibility. While you’ll still need organization for any company, you are better off going the LLC route if you prefer to keep your options open.
Liability: When it comes to liability, LLC’s and Corporations have the advantage of shareholder protection via limited liability. This means that if someone sues your company, or if the company incurs debt, you cannot be held personally liable. The limited liability clause ensures the safety of personal assets of each shareholder within the LLC or corporation.
Once you figure out which business entity best suits your business, you will need to file the appropriate paperwork. Whether you are starting a corporation or filing your llc forms, the easiest way to get your paperwork in is to work with a reliable site such as Gov Doc Filing.