LLC vs. INC — Which Business Entity is Best for My Company?
Choosing a business entity for your company is one of the most important steps you take as you set up your company. However, which business structure is best for you? Some business structures offer higher protection from personal liability, but may require a higher initial investment to set up. To help you decide whether an LLC or INC is best for your company structure, our Coral Springs business law attorney explains below several issues related to each of these business forms.
At A Glance — In this article we discuss:
- What is a Limited Liability Company?
- What is a Corporation?
- Should I choose an LLC or a Corporation for My Business Entity?
What is a Limited Liability Company?
A Limited Liability Company (LLC) is a business structure that is formedunder a state statute. Owners of the company are referredto as members. An LLC may be formedwith one or more members. Each member owns an interest in the LLC.
Some of the benefits of an LLC include:
- LLCs have a great deal of flexibility in the way you manage the company. The Operating Agreement can be drafted to allow specific members to have certain responsibilities and powers while limiting the role of other members.
- LLCs may elect to be taxedas a corporation, but most LLCs are taxed as sole proprietorships or partnerships, based on the number of members in the LLC.
- LLCs provide members with limited personal liability. Members are not liable for the LLCs’ debts or obligations.
- Members are not required to conduct annual meetings or other formalities required for some business entities.
- An LLC may be converted to a corporationif the business outgrows the limitations of an LLC.
While an LLC may be easier to set up and operate than a corporation, there are some disadvantages of forming an LLC. Some professional groups may not use an LLC as a business entity for their company. Members may also be held liable in some situations for company obligations. Transferring interest in an LLC or adding a new member may be difficult, depending on how the Operating Agreement was drafted. Also, an LLC is typically not suitable if you will be seeking investors or you want to make a public offering.
What is a Corporation?
A corporation is another business structure that offers many benefits. Corporations are recognizedas legal entities. They can hold title to propertyand transact business in the company name. Individuals can purchase shares of stock that entitle them to receive distributions when the corporation earns a profit. However, the shareholders do not manage the day-to-day operations. A Board of Directors and officers manage the day-to-day operations.
Some advantages of a corporation include:
- Shares may be sold, transferred, and purchased.
- A corporation has an unlimited life span.
- Public companies typically choose corporations as their business structure because of the ease of raising capital.
- Shareholders cannot be held liable for any of the corporation’s debts or obligations.
As with other types of business structures, corporations have several disadvantages. For instance, setting up a corporation and operating a corporation is more expensive and difficult. Corporations must hold annual meetings and maintain minutes of those meetings. Corporations also must file various reports and forms, and pay annual fees according to government regulations.
Lastly, a corporation’s profits may be subject to double taxation because the corporation must pay corporate taxes and shareholders pay taxes on dividends received from the corporation.
Should I choose an LLC or a Corporation for My Business Entity?
The above discussion about LLCs and corporations is a brief review of some of the advantages and disadvantages of these business structures. However, there could be several other factors that make one business structure a better choice for you than the other business structure. A thorough analysis of your situation and needs is required to determine whether you should organize an LLC or incorporate your business.
How do you sort out the important factors and issues to decide between an LLC or an INC? One way is to consult a Coral Springs business law attorney. An attorney reviews your goals, needs, and company details to determine which business structure provides you with the best benefits and protection.
As a business law attorney understands the pros and cons of these business structures in great detail, and the attorney can help you analyze each of the pros and cons related to your company. Only by analyzing the pros and cons of a business structure against your personal goals for your company can you choose between an LLC vs. an INC for your business.
Contact A Coral Springs Business Law Attorney for More Information
Matthew Fornaro provides legal advice and counsel to individuals, companies, and businesses in Coral Springs, Parkland, and throughout Broward County. Call 954-324-3651 or contact us online to schedule a consultation with a Coral Springs business law attorney.