LLC Versus Corporation
When a business owner or entrepreneur considers forming a business entity, they frequently ask the question as to what entity is the best to choose. The two most common entities are Limited Liability Companies and Corporations. The two entity types have many similarities and for the most part can both accomplish the same things. Reasons to choose one or the other typically gets down to what are you trying to accomplish and what are your goals.
Structure of a LLC
The simplest structure is the LLC. A LLC has a lot of flexibility and is generally the first type of entity I would recommend when I am speaking with a business owner. As described in its name, a LLC provides liability protection. What this means is that the owners of a LLC are limited in liability to only what they have invested in the company. Now there are exceptions to this liability protection when certain procedures and standards are not followed. What that is called is piercing the corporate veil. Piercing the corporate veil is another entire conversation. LLC ownership consists of members and can be managed either as a manager-managed company or a member-managed company.
Benefits of a LLC
One great benefit a LLC has is its ability to either be taxed as a corporation, a partnership, or on an individual’s personal return. A LLC can convert – for taxation purposes – from a LLC to an S-corp by filing Form 2553 or a C-corp by filing a Form 8832. This process can be also converted in the reverse way from corporate taxation to partnership taxation.
Structure of corporation
A corporation entity is very similar to the LLC in that an owner is only liable to an amount limited to the balance invested in the corporation. Corporations have more requirements to follow to maintain corporate formalities. One major benefit to a corporation is fact that many investors are more comfortable investing in that type of entity. This preference is especially true for larger corporations. Sometimes investors are intimated of LLCs as they do not understand them.
Understanding the needs of a business
We at Fargo Patent and Business Law have experience running businesses and understand business. This unique trait can help bridge the gap between the needs of business and the demands of the legal system. If you have a question, please don’t hesitate to reach out. To learn more about the business services we offer at Fargo Patent and Business Law, click here.
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