Which is Better?
When it’s time to incorporate, many business owners find themselves wondering which business type to choose. Gaining a clear understanding of your options can feel overwhelming, especially if you’re just getting started. Let’s explore some consideration points when comparing LLC vs. Corporation options. But first, let’s start with a quick definition of what it means to incorporate.
When you incorporate a business, you evolve from a sole proprietorship (or general partnership) into a company that’s formally recognized by its state of incorporation. In other words, it becomes a legal business entity of its own — separate from the individuals who founded it. The new company structure often falls into two categories: a limited liability company (LLC), or a corporation (corp). In this article, we’ll be focusing on LLCs, as well as two popular types of corporations — an S corporation (S corp) and a C corporation (C corp).
No matter how you choose to incorporate, there are certain benefits you can expect — like being shielded from personal liability, as well as increased credibility with customers. There are also additional advantages and disadvantages associated with each incorporation type.
All incorporation options are not created equal. When deciding between a corp vs. LLC, the best choice for your business not only helps you start off on the right
LLCs protect business owners, also referred to as members, from being held personally liable for the actions of the LLC. This limited liability typically protects you from the personal risks involved if a lawsuit were to arise concerning your business — safeguarding your personal assets. A
To learn more about LLCs, visit our Benefits of Creating an LLC article.
When evaluating types of corporations, many business owners consider taxation to be the most noteworthy difference between S corporations and C corporations. In a nutshell, an S corp is a “pass-through” tax entity, like the LLC. In contrast, C corps are taxed as separate entities. They are also subject to “double taxation” if corporate profits are distributed to owners (shareholders) in the form of dividends. C corporations pay tax on their profits first at the entity level and then owners pay taxes at the individual level on profits received as dividends, resulting in the double tax.
We’ve already noted taxation and management as two distinctions between limited liability companies (LLCs) and corporations, but there are other key differences worth highlighting, including:
As you decide which business structure is best for you, try our Incorporation Wizard to compare multiple business types by multiple key considerations.
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