How to Choose Between a Limited Liability Company and a Corporation
When it is finally the right time to advance your business and integration to the next stage, you are not sure whether to choose a limited liability company or a corporation. Both choices can give you limited liability protection to safeguard your assets from your business liabilities, and also debts. The two legal entities, however, still have other differences, and therefore the choice you make can impact your business in a big way. Here are some tips to assist you in making 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 flexible hence many people choose to form it. The 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 creating a limited liability company with a board of managers is also another option. 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, there must be a central management structure in a corporation which includes a board of directors. A corporation is also supposed to preserve and file documents, to hold regular meetings, and also to maintain minutes. Unlike a limited liability company which decides on how it should be taxed, a corporation is also subjected to double taxation. Therefore, the business income is taxed at the corporate level and back after being distributed to the shareholders.
Among the two options, none of them can be ideal for every kind of business. However, due to its minimal requirements, it is better for startups and small businesses to choose a limited liability company. It is also cheaper to form and sustain a limited liability company and get to enjoy limited liability. And for the larger companies, corporations are usually suitable for them. To help you in making the right choice between the two entities, you can seek the help of either a corporate services company, accountants, or a lawyer. This is because the decision can be determined by many business factors such as the business income, your risk level, and long term goals.