As a small business owner, you may be wondering what the best business structure is for your company. You might be thinking about the pros and cons of an LLC or a corporation.
In this “LLC vs Corporation” article, we will compare the two structures to help you decide which one is right for your business.
You should also see the best LLC formation services in America today...
There are many different ways that small business owners can structure their company, and the most popular options are an LLC or a corporation.
Now, let's take a look at a breakdown of the differences between these two types of businesses to help you find out which one is best for your needs. What is an LLC?
- What is an LLC?
- LLC Vs Corporation (What is the Main Difference)
- Comparison of LLC and Corporation
- Advantages and Disadvantages of an LLC
- Advantages and Disadvantages of Corporation
- LLC Vs Corporation Decision Making Guide
- How to Choose a Legal Entity for Your Startup Company (LLC vs Corporation)
- Business Formation FAQs
- Conclusion & Final Thoughts
What is an LLC?
An LLC is defined as a Limited Liability Company; thus it is safe to say that, LLCs are one of the most popular business structures. They are referred to as “pass-through entities” meaning that the profits and losses “pass-through” to and from owners on their personal tax returns.
This means that LLCs don't pay taxes at the company level. Only at the individual owner level when they file their taxes do they actually pay taxes on the profits or losses of their business.
The other benefit of having an LLC or a pass-through entity is that if you have an entrepreneurial income, you can put your business income onto your personal tax return, which will lower your overall effective rate since small businesses are taxed at a lower rate than corporations.
LLC Vs Corporation (What is the Main Difference)
The main difference between an LLC and a corporation is how they are taxed. An LLC is taxed as a partnership, while a corporation is treated as a separate entity and pays taxes on its own income.
This means that if your company has more than one owner, it would be better to form an LLC because then everyone can share in the profits of the company.
If there are only one or two owners, a corporation would be better because then the owner would not pay taxes on their share of the company. The LLC is taxed as a partnership, while a corporation is treated as a separate entity and pays taxes on its own income.
This means that if your company has more than one owner, it would be better to form an LLC because then everyone can share in the profits and losses. An LLC is not a corporation and does not need to pay federal income tax.
You can also create an LLC to avoid the double taxation that comes when profits and losses are split between individuals.
There are tax considerations if you choose to have an individual owner, who is not in a partnership, but it is not as important with a sole proprietorship because of the losses.
If you have any questions on how to form your company or what tax implications there may be, we can help. Can I start a business as an LLC? It is possible to start a business as an LLC? LLC vs Corporation, which should I choose?
Here's a List of Our Trusted Partners Who can help you with all your questions about business registrations and also the formation of your business in the US with exclusive tax experts at your service.
- Bizee (formerly known as IncFile) (My #1 Favorite option)
- BetterLegal Inc.
- NorthWest Registered Agent
- MyCompanyWorks, Inc.
- ZenBusiness, Inc.
Comparison of LLC and Corporation
There are many different types of business structures, and each has its own advantages and disadvantages. Two of the most common types of business structures are LLCs and corporations. So, which is the right choice for your small business?
The main difference between an LLC and a corporation is that an LLC is a pass-through entity, meaning that the profits and losses of the LLC are passed through to the owners, while a corporation is a separate legal entity.
This means that the owners of an LLC are not personally liable for the debts of the LLC, while shareholders of a corporation can be held liable for the debts of the corporation.
Another difference between LLCs and corporations is how they are taxed. An LLC is taxed as a partnership, meaning that the owners pay taxes on their share of the profits, while a corporation is taxed as a separate entity. This can be advantageous if you want to minimize your tax liability.
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So, which type of business structure is right for your small business? Well, to begin with, It depends on a number of factors, including how many owners there are, what kind of business you're in, and your personal preferences.
If you're not sure which structure is right for you, it's a good idea to speak with a business attorney, who can explain the pros and cons of each option.
Here's a list of the best business attorneys you can reach out to now;
see the full list here…
LLC vs S Corp
Limited Liability Company is a completely legal structured business type; While an S Corp business type is just a tax classification that's available to some small businesses.
It is however important to note that both the LLC business type and the Corporations can elect S Corp taxation by filing a form with the IRS.
One of the main advantages of S-corp taxation in an LLC is that it may save money on self-employment taxes.
This is mainly because the owners of an S-corp can also be company employees, which means they must pay themselves a reasonable salary; but any additional company earnings are considered distributions, which are not subject to Medicare and Social Security taxes.
What is an S Corp? An S corp is simply a legal way of forming a business that can pay less tax than other types of corporations.
LLC vs C Corp
A limited Liability Company is a completely legal structured business type that is totally separate from the owners; While a C Corp is just a tax classification that both the LLCs and Corporations use for their taxes.
Advantages and Disadvantages of an LLC
There are so many business structures available to choose from when starting a small business, and let the truth be told, it can be a bit overwhelming to decide on which one is the right option for you as a beginner.
LLCs and corporations are the two most common business structures which are known to so many people, and each of these business types has its own advantages and disadvantages.
Now, let us take a look at some of the pros and cons of each type of business structure to help you decide which one is right for your small business:
Advantages of an LLC:
- An LLC offers personal liability protection for its members: This means that if your LLC is sued, the members' personal assets will not be at risk.
- An LLC can help to save on taxes: LLCs can choose to be taxed as either a corporation or a partnership, and this can provide significant tax advantages.
- An LLC is relatively easy and inexpensive to set up: Compared to other business structures, an LLC requires less paperwork and can be established fairly quickly and easily.
- An LLC offers flexibility in how it can be managed: Members can choose to have a centralized management structure or a more decentralized structure, depending on what makes sense for their business.
Disadvantages of an LLC:
- An LLC is not a separate entity. It is not a corporation that can be sued, nor can it sue.
- An LLC is taxed like a partnership, rather than a corporation.
- Limited liability company members cannot take advantage of the tax savings from the “flow-through” tax treatment of a partnership or S corporation.
- LLC members (owners) are subject to self-employment taxes for social security and Medicare.
- LLC owners must file an informational tax return with the IRS and pay taxes on their share of the company's profits (called “disguised dividends”).
- Certain state laws allow creditors to pierce the limited liability protection of an LLC, making owners personally liable for business debts.
Advantages and Disadvantages of Corporation
When making the decision of the type of business structure you want to set up for your business, it is very important for you to weigh the pros and cons of each business structure before making your decision.
Advantages of Corporation
Having a Corporation Business Structure type comes with its advantages and are some of the advantages to incorporating your small business:
- Limited Liability Coverage (If for any reason the company is sued, your personal assets will be protected).
- It is Easy To Raise Capital
- Gives You a More Professional Image
- Lots of Tax benefits
- Business Continuity (Your business will continue to exist even when you are gone)
Disadvantages of Corporation
Here's a list of the disadvantages of incorporating your business:
- Double Taxation (income can be taxed twice)
- Excessive tax filing
- High Cost of Business Formation
- Independent Business Management (the management team of a corporation can choose to operate the business without any oversight)
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LLC Vs Corporation Decision Making Guide
Forming an LLC or a Corporation for your business will allow you to take advantage of limited personal liability for business obligations.
It is true that LLCs are favored by small, owner-managed businesses that want flexibility without a lot of corporate formality, But Corporations are a good choice for a business that plans to seek outside investment.
Both the LLC business type and the Corporation business type do protect company owners from personal liability for business obligations.
To choose which business type is best for you, I will recommend you contact any of our trusted partners below for a free consultation and help in forming or registering your business today.
Our Trusted Business Partners:
How to Choose a Legal Entity for Your Startup Company (LLC vs Corporation)
Just like I mentioned in the above statement: It is best to speak with an experienced partner in the field, to help you make the right decision and also help you with every required step during your business registration.
Just like we have successfully compared LLC vs Corporation in this article, you now have an idea of what you are looking for, I believe.
Now let's go through each of these trusted partners that will help you achieve this for your business. I will give a brief explanation of each partner and also give you a direct link to each partner, so you can go through each of them and make your decision.
Trusted Business Registration Partners
Here's a list and overview of our trusted business partners that can help you in your business registration process:
Bizee (IncFile) has assisted over 1,000,000+ entrepreneurs and small business owners like you to form and grow their businesses.
They are Headquartered in Houston, Texas, our journey began in 2004 when business registration meant excessive paperwork and expensive attorneys.
They believe that ideas are how people change the world for the better, and as a result of this belief, they have made their goal, to guide you down your entrepreneurial path.
Inc Authority was created to take the fear, confusion, and high cost out of business formation. They offer round-the-clock expert support to help you make the best decisions for your business.
For 30+ years, Inc Authority and its family of companies have been helping entrepreneurs around the country achieve the dream of business ownership. They have formed over 250,000 businesses and are eager to see that number continue to grow.
BetterLegal has the Fastest turnaround time you can find anywhere, transparently affordable fees, extra help along your business journey after formation, and the first interactive dashboard to manage changes down the road.
MyCompanyWorks, Inc. (formerly MyNewCompany.com, Inc.) was founded in 2001 with one simple mission: to make starting a business as simple, fast, and inexpensive as possible.
Since then we've formed thousands of companies for our clients and have grown into one of America's largest providers of incorporation, LLC formation, and other small business services.
Starting a business can be a confusing, expensive, and frustrating experience. Their goal is to make that process easier, faster, and less expensive.
ZenBusienss's mission is to help and enable so many people to start, run, and grow their businesses while avoiding common pitfalls and mistakes that most young entrepreneurs make when starting up their entrepreneurial journey.
Business Formation FAQs
What type of legal structure will your business be? LLC or Corporation?
1. Sole proprietorship Business structure: – One-person Ownership with Unlimited personal liability and Self-employment tax or Personal tax.
2. Partnerships Business structure: – Two or more people Ownership with Unlimited personal liability unless structured as a limited partnership, and also Self-employment tax (except for limited partners) or Personal tax.
3. Limited liability company (LLC) Business structure: – One or more people Ownership; But, Owners are not personally liable, and also, Self-employment tax Personal tax, or corporate tax.
4. Corporation (C corp Business structure): – One or more people Ownership; But, Owners are not personally liable, and the tax is a Corporate tax.
5. Corporation – S corp: – One or more ownership (maximum of 100 owners, and they all must be U.S. citizens); But, Owners are not personally liable, and the tax is a Personal tax.
6. Corporation – B corp – One or more people ownership; But, Owners are not personally liable, and the tax is a Corporate tax.
7. Corporation – Nonprofit – One or more people ownership; But, Owners are not personally liable, and for the taxing, there's Tax-exempt, but corporate profits can't be distributed.
What is the best structure for a small business? LLC vs Corporation
It all depends on the nature and weight of your business. Most small businesses started as limited liability companies (LLCs).
You can choose the LLC business type if the following things apply to you:
1. You do not plan to attract investors.
2. You plan to invest most of your profit back into the business each year.
3. You would benefit most from an easy-to-maintain business structure.
How do you choose a formal business structure?
As a Startup, If you want sole or primary control of the business and its activities, a sole proprietorship or an LLC might be the best choice for you.
You can also negotiate such control in a partnership agreement as well. A corporation is constructed to have a board of directors that makes the major decisions that guide the company.
What are the 4 types of business structures?
The most common forms of business are the sole proprietorship, partnership, corporation, and S corporation. A Limited Liability Company (LLC) is a business structure allowed by state statute.
What are the four legal structures of a business?
The four main forms of business structures in the United States include sole proprietorship, partnership, limited liability company, and corporation.
What does legal business structure mean?
A business structure refers to how a business is legally organized. The type of business structure can affect how a business is regulated, taxed, and more. Because of this, choosing the best structure for your business is one of the most important decisions you will make.
Which crucial factors would you like to consider before deciding on the kind of legal structure of your business entity?
These are the five most important factors to consider when choosing an entity type.
– Continuity of Existence.
– Complex Procedures.
– Investment Needs.
What business structure is an LLC?
A limited liability company (LLC) is a business structure in the U.S. that protects its owners from personal responsibility for its debts or liabilities. Limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship.
What is better LLC or sole proprietorship?
A sole proprietorship is useful for small-scale, low-profit, and low-risk businesses. A sole proprietorship doesn't protect your personal assets.
An LLC is the best choice for most small business owners because LLCs can protect your personal assets.
What is a business structure example?
Common examples of business structures include corporations, partnerships, holding companies, non-profits, subsidiaries, and limited liability companies. Here are a few examples: A sole proprietorship is an unincorporated business owned by a single individual.
Which legal business structure includes one or more individual owners who are legally distinct and separate from the business?
A corporation is a legal entity that is separate and distinct from its owners.
What legal structure is easy to create but has unlimited liability?
A sole proprietorship is easy and inexpensive to create. It is the least regulated form of business ownership. The business pays no taxes; income is taxed at a personal rate of the owner. The owner has unlimited liability.
Is an LLC better than an S corporation?
If there will be multiple people involved in running the company, an S Corp would be better than an LLC since there would be oversight via the board of directors. Also, members can be employees, and an S corp allows the members to receive cash dividends from company profits, which can be a great employee perk
Who pays more taxes LLC or S Corp?
Who pays more taxes, an LLC or S Corp? Typically, an LLC taxed as a sole proprietorship pays more taxes and S Corp's tax status means paying less in taxes. By default, an LLC pays taxes as a sole proprietorship, which includes self-employment tax on your total profits.
How do I pay myself from my LLC?
As an owner of a limited liability company, known as an LLC, you'll generally pay yourself through an owner's draw. This method of payment essentially transfers a portion of the business's cash reserves to you for personal use. For multi-member LLCs, these draws are divided among the partners.
Should I get an EIN for my LLC?
Yes, you need to get it.
An LLC will need an EIN if it has any employees
What is legal ownership of a business?
A company is a legal entity on its own, So, therefore, individual shareholders are only liable for debts or liabilities that the company incurs up to the amount unpaid on their shares
Can a single-member LLC own an S corp?
Yes, you can own an S Corp.
What does S corp stand for?
S Corp means: Small Business Corporation
It is a special tax status that lets corporations pass their corporate income, credits, and deductions through to their shareholders.
Can my LLC pay for my cell phone?
Yes, it can, and it is considered an ordinary and necessary business expense.
Are you considered self-employed if you own an S corp?
Shareholders of corporations are not considered self-employed.
Do LLCs get tax refunds?
Generally, the answer is no
Does the owner of an LLC get 1099?
For single-member LLC or partnership, you will get 1099 from a company paying $600 or more in yearly revenue.
How much can you write off on an LLC?
You can deduct up to $5,000 of the costs of forming your LLC in a single year, including The cost of completing articles of organization.
Do I need a separate bank account for my LLC?
A corporation or limited liability company (LLC), however, is a legal entity separate from its owner. That entity needs its own bank account to maintain legal separation between owner and business, protecting the owner from legal liability.
Can you have multiple DBA under one EIN?
If you have multiple DBAs for one entity, you only need one EIN.
Can an S corp own an LLC?
If you are wondering if your S-corporation can own an LLC, the answer is Yes.
Who pays more taxes LLC or S Corp?
Typically, an LLC taxed as a sole proprietorship pays more taxes, while an S Corp's tax status means paying less in taxes.
Can you claim your car insurance on your taxes?
Car insurance is tax-deductible as part of a list of expenses for certain individuals. Generally, people who are self-employed can deduct car insurance, but there are a few other specific individuals for whom car insurance is tax-deductible, such as armed forces reservists or qualified performing artists. Click here to learn more…
Can I write off car insurance as a business expense?
Is it better to be self-employed or LLC?
You can't avoid self-employment taxes entirely, but forming a corporation or an LLC could save you thousands of dollars every year. If you form an LLC, people can only sue you for its assets, while your personal assets stay protected. You can have your LLC taxed as an S Corporation to avoid self-employment taxes.
What if my LLC made no money?
LLCs that have become inactive or have no income may still be mandated to file a federal income tax return. Filing requirements will depend on how the LLC is taxed. An LLC may be taxed as a corporation or partnership, or it may be totally disregarded as an entity with no requirement to file.
What are the Top 5 Best Business Registration Agencies in the USA?
Conclusion & Final Thoughts
My final thoughts on LLC vs Corporation is that both of them are great and designed for different purposes.
Now that you have an idea of their differences, to help you in deciding between LLC and corp, we have listed some of our trusted partners in the article above.
Go through each of these partners and have a free consultation with each one of them to help you make the right decision for your business.
We have provided you with everything you need to know about forming an LLC or a corporation for your business; It's now up to you to take the step and start growing your business.
Feel free to ask me any questions regarding the subject of LLC vs Corporation, and I'll do my best to answer you with more clarity.
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