Benefits of a Corporation vs LLC
“What is the better organizational form for a small business an LLC or a corporation?” This question is one Mr. Trent Lee, a corporate credit concepts consultant, is frequently asked. While there are numerous factors to be considered in making a determination of which business entity provides the best operating structure for a small business. After reviewing all the factors Mr. Lee has found that most often he recommends a limited liability company (LLC) as the preferred structure for a small business. Here is comparison of the two forms business structure.
Process of Creating
The procedures for creating either business structure will vary state-by-state, but generally both are similar in their filing requirements. In most cases the creation of either a corporation or a limited liability company (LLC) necessitates the filing of documents with the Secretary of State’s office. In addition the creation of a corporation requires a decision about the issuance of stock, the par value the issued stock, etc. The creation of a limited liability company does not require any stock determinations.
Personal and Business Liability Protection
Either business structure, corporation of LLC, allows for the use of corporate credit concepts planning in order to provide a small business owner with the best possible asset protection. In some states the LLC structure provides additional protection. In those states a legal judgment against a corporation can be enforced by the forced sale of unissued corporate stock in the amount of the judgment. In those states the enforcement of a judgment against a limited liability company is limited to the profits earned by the company. If no profits are not declared and distributed by the LLC the hold of a legal judgment cannot force the sale of the business.
Taxes Considerations
When it comes the taxes the LLC’s major advantages is the ability of the owners to choose the manner in which the entity will be taxed and how corporate credit concepts planning will be addressed. The LLC can any one of the following tax structures:
1. Sole Proprietor
2. S-corporation
3. C-corporation
4. K-corporation (as long the LLC has at least two partners)
The traditional corporation is limited to the choice of two tax structures either:
1. C-Corporation
2. S-Corporation
The process of which tax structure offers the best advantages for your company is a major decision that should be discussed with your tax advisor and your corporate credit concepts advisor.
Legal Obligations of the LLC vs. the Corporation
The major advantage of the LLC, as a business structure, is the fact that it has fewer formalities required to meet its legal obligations. A corporation is required to have annual meetings with shareholders and board of directors. Additionally other meetings are required according to the requirements of state law, (they vary from state to state), and these meetings are required to be documents by accurate minutes and formal resolutions are required for all actions taken by the board of directors. A corporation is also required to file an annual report the secretary of state. Failure to file required reports in a timely manner can result in the termination of the corporation and loss of the asset protection the corporation was created to provide. The LLC doesn’t require any additional documentation to maintain the status of entity. The elimination of the additional documentation saves time and the expense of professional services.
Trent Lee states there are many factors that must be evaluated and considered when deciding upon the form of corporate structure your business will organized under. An attorney should always be consulted prior to forming any company; not only to address the issue of corporate structure, but to also discuss licensing, registrations and other legal issues you need to address to meet local laws and statues.
Author: Trent and Chad Lee |
