Do You Need an LLC or Corporation?

Do You Need an LLC or C Corp?
 

You can form an LLC or a Corporation.

Both prevent you from being personally liable for your business debts.

But there are important differences.

Here's how to tell which one is right for you…

1. Taxes

An LLC is simple.

You’ll file the individual forms and use the individual tax rate.

You’ll only be taxed once on the money you make.

A Corporation is more complicated.

You’ll file a separate tax return and you’ll be subject to double tax.

The corporation will be taxed when it makes money and you’ll be taxed when you put that money into your bank.

The tax part is complicated, so check with an accountant to see what works best for your situation.

2. Management

An LLC is simple to start.

It requires annual filings and fees.

You may also want to create an LLC Agreement if you have multiple owners.

Read More: How to Form an LLC

A Corporation is more complicated to form.

It requires filings and fees, a board of directors, bylaws, and annual meetings.

You may also have to issue stock certificates.

You want to make sure you can keep up with the requirements.

Read More: How to Form a Corporation

3. Investors

An LLC isn’t typically the best option for investors..

You can’t issue preferred stock with an LLC.

So it’s hard to issue company incentives in exchange for a financial investment.

It can be done and it works in some industries, but as a whole, it’s not the best.

A Corporation is usually the best fit when you’re looking for investors.

You can issue shares in the company in exchange for a financial investment.

This is typically the only time we recommend forming a Corporation.

They’re expensive and time consuming, so it makes the most sense for funding.

4. How to Decide

There's no right or wrong company choice.

It's about which one is the best fit for your company goals.

Think about which factors above are most important to you.

 

 

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How to Start Your Business Legally

In this guide, you’ll learn…

How to register your business

How to trademark your brand

How to copyright your work

How to protect your business