Choosing between forming an LLC or a Corporation

Benjamin P. Barrett
Attorney | Vandenack Weaver Truhlsen

Choosing between forming a limited liability company (LLC) or a corporation depends on several factors. The following are some key differences between an LLC and a corporation for you to consider when making this decision:

1) Ownership and Management Structure: A corporation has more formal requirements for management, including a board of directors, while the owners of a corporation are known as shareholders, who own stock. On the other hand, an LLC is more flexible with its “members” owning a membership interest. An LLC can be managed by its members, or the members can choose to appoint managers to manage the business.

2) Taxation: A corporation can choose to be taxed as either C-corporation or an S-corporation. C-corps pay taxes on their profits, while S-corps pass profits and losses through to their shareholders’ personal tax returns. LLCs, on the other hand, can be taxed as disregard entity, partnership, C-corp, or S-corp. Depending on the tax structure chosen, the profits and losses can be reported on the members’ personal tax returns or on a separate return for the entity.

3) Liability Protection: Both LLCs and corporations provide limited liability protection to their owners. This means that the owners’ personal assets are generally protected from business liabilities. Typically, the owners’ are only liable to lose the assets that they contributed to the LLC or corporation.

4) Financing and Investment: LLCs are often better suited for smaller, closely-held businesses, while corporations are typically better suited for raising funds through the sale of stock.

When choosing between forming an LLC or corporation, it’s important to consider your specific needs and goals for the business. The experienced attorneys at Vandenack Weaver Truhlsen can assist you with choosing the right type of business to achieve your specific goals.