LLC vs Corporation: Which Is Best?

Taking the step beyond having a sole proprietorship is a good idea for nearly any business. After all, as the owner of a sole proprietorship, you and your business are considered to be one and the same. This means you are personally liable for your business. Therefore, forming an LLC or a corporation is usually a smart move.

For many small business owners, forming an LLC is the best option. This is because forming an LLC is simpler than forming a corporation. In addition, an LLC offers more flexibility than a corporation. In addition, LLC members do not have to deal with double taxation, which occurs with a corporation. This is because the tax liabilities of the business are passed on to its members and the LLC does not pay taxes on income.

For some business, a corporation is a better option. If the business will have multiple investors or intends to raise money from the public, a corporation may be the better choice. An LLC is good when there are only a few investors, particularly when they are actively involved in the daily operation of the business, but it can become more difficult to maintain an LLC when many investors are involved with the business. For a business looking to avoid overcoming resistance from its investors, a corporation is a better choice than an LLC.

Businesses that wish to offer extensive fringe benefits to its owners should also consider forming a corporation. Similarly, if the business wishes to draw in new employees by offering stock options, a corporation formation will be necessary because LLCs do not have stock. As an LLC, employees can be offered a membership interest, but this process is awkward and not the same as providing employees with stocks. Therefore, when planning to offer partial ownership in the business as an incentive, the corporation formation makes more sense.

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You should consult with a professional lawyer to make your decision regarding incorporation or any other business decision.