Tips for Choosing Between A Limited Liability Company and Corporation
Deciding on either form a limited liability company or a corporation is challenging when you have decided to move to the next level in your business and incorporation. No matter your choice, you can get limited liability protection to safeguard your assets from your business liabilities as well as debt. However, these two legal entities still have their other differences, and the decision you make is going to make an impact on your business in a big way. Below is a guideline to help you make the right choice between the two. A limited liability company is among the most critical decisions for small companies, which is a pass-through entity.
A limited liability company is preferred by many people due to its versatility. Income from the company can be passed through to particular members who give their share on the tax return, or through a C corporation or an S corporation. Through limited liability companies, there are no management or specific structure that must be met. Many people prefer to manage their limited liability companies with owners or members. However, they can also opt to establish a limited liability company with the board of managers. With a limited liability company, you are provided with limited liability protection to your assets in case your business is unable to pay its debts or sued.
Corporation, on the other hand, is usually a better choice for larger companies since there are no strict requirements that need to be met. However, a corporation must have a primary management structure which consists of a board of directors. Preserving and filing of documents, holding regular meetings, as well as renewing of minutes are also other requirements for a corporation. It is also subjected to double taxation, unlike a limited liability company which decides on how it should be taxed. Therefore, the business income is taxed at the corporate level and back after being distributed to the shareholders.
There is no choice among the two that can be suitable for every type of business. However, it is advisable for startups and small businesses to choose a limited liability company since they have minimal requirements. It is also cheaper to form and sustain a limited liability company and get to enjoy limited liability. Larger companies, on the other hand, are usually fit for the corporations. With the help of either a corporate services company, accountants, or a lawyer, it can be easy to make your choice between the two entities. This is because the decision can be determined by many business factors such as the business income, your risk level, and long term goals.
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