The Benefits of an LLC over a C-Corp

The benefit of an LLC vs C Corp depends upon the vision, the owner goals and the industry that the company serves. This is the time to be sure that there is a visionary on board with a futuristic eye before the company launches.

When the formation is correct from the start, the owner has a better chance of financial and operating success. Growth and development will be smoother and allow the owner(s) to pursue.

About the C-Corp

Owner(s) with intent to grow, expand and hire employees may consider the formation of a C-Corp. There are several benefits to the formation of a C-Corp include:

• Independence from its owner(s) for legal and tax purposes
• Helps the owner(s) keep their business and personal assets separate
• Lack of limits on the number of shareholders
• Payment of taxes on shareholder dividends and corporate profits
• Requirements to keep a record of minutes from the annual meeting

This is the most common structure for most businesses because it limits any liability that could befall an officer, director, employee or shareholder. It can raise capital quickly by selling stock in one of two formats: common stock or preferred stock. The unlimited number of shareholders does not need to be U. S. residents or citizens.

C-Corp Idiosyncrasies

If the owner(s) decide to leave the business, it can remain in existence now and forever. Preservation of continuity is important to the credibility of any business entity. Finally, in order to lower overall tax liability, the owner(s) and the business can split the profits and the losses.

Although this process of incorporation could be a do-it-yourself activity, having an accountant handle it is more prudent. The presence of an accountant will be important to the corporation from the beginning. Although it is not necessary for the accountant to be on-site, the daily transactions of the company may depend upon consistent availability.

The strangest idiosyncrasy of all is the double taxation that applies to the C-Corp. All profits are subject to tax at the corporation level. The corporation then sends dividends to their stockholders. The stockholders each pay income tax on those same dividends.

About the LLC

An LLC is a Limited Liability Corporation, a legal structure, which is separate and independent of its owner(s). Creditors cannot go after any personal assets of LLC owners to pay business debts. They have limited responsibility for obligations and debts that belong to the business. This particular formation includes:

• A requirement to hold your personal assets separate from the business debts
• Similar to a partnership or a sole proprietorship for tax purposes
• Not unlimited to a certain number of owners
• Filing of annual reports and paying the fees
• Controlled by operating covenants

Notice that for tax purposes, owner(s) are able to report profit and loss on individual tax returns as there is no requirement to file a separate corporation tax return. An LLC can be under the ownership of an individual or another company. Although annual meetings and minutes are not a requirement, both are highly recommended.

LLC and its Idiosyncrasies

There are three oddities of the LLC. The first is that the owners cannot split income and expenses to lower the taxes. However, the owners can make an election that the Internal Revenue Service will tax the LLC as a C-Corporation, sole proprietor or a partnership.

Second, an LLC cannot issue any stock. This provision means that raising capital, especially in an emergency, will be particularly difficult. Finally, organization of the LLC must meet the rules of the state LLC department, a division of the Secretary of State.