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Business formation: LLC or corporation?

Starting a new business is an exciting venture, but it often comes with some questions and stress. As you begin to follow your dreams to become a business owner, you might be wondering what type of business you should form. With so many options out there, this choice can be confusing. Here is a quick rundown of two of the most common business structures: limited liability companies and corporations. 

LLC overview

When you are forming your business, you might consider creating an LLC because of the protections, flexible management structure and pass-through taxation that come with it. This type of activity protects your personal assets should a lawsuit arise regarding your business. Unlike corporations, LLCs do not have a formal management structure, allowing for more flexibility and creativity.

Corporation overview

There are two different kinds of corporations with differing benefits. Both have certain essential characteristics:

  • C corporations: Owners receive dividends instead of income, and the business is taxed as a separate entity.
  • S corporations: The pass-through taxation is similar to an LLC, with self-employment taxes paid only on money received through compensation.

Essentially, an S corporation combines the benefits of an LLC and C corporation. C corporations are generally best for larger organizations with multiple employees.

Core considerations

The business type you choose to form has tax and legal implications. If you want the flexibility of a partnership with the liability protections of a corporation, consider an LLC. If you want to start a bigger business with a formal structure, you ought to form a C corporation. Otherwise, forming an S corporation can allow you to enjoy the tax efficiencies of an LLC with the structural advantages of a C corporation.

There is a lot to think about when starting a business, and this is just a brief glimpse of some of the most popular types. For further information and counsel on forming your business, contact a business law attorney.

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