Sometimes the path to owning your own company looks like someone spilled alphabet soup all over it. Between LLC and CORP and INC, you're left scratching your head. Anyone would be. Thankfully, we're here to help clear it up for you.
Corporations tend to come into play when larger amounts of capital are on the line. Given how they process these necessary transactions, there's little surprise to it. LLC are limited liability companies. These are largely small businesses with a lot to lose.
Most first-time business owners will find themselves starting an LLC. But why? Why not jump in and go corporate? What's the difference?
There are so many questions racing through the mind of most first-time business owners. Our suggestion, after reading this, is to speak to a business lawyer and an accountant in your area. They can help guide you based on the specifics of your individual business situation and potential outcomes.
An LLC is a limited liability company, but what does that mean? It's a way for small business owners to protect their personal assets while also investing in their company's future. For instance, Tod owns a small restaurant. He has created an LLC to protect his personhood from lawsuits, potential losses, and bankruptcy. He also appears to be a stronger professional from registering this LLC.
He is personally and financially invested in his company's outcomes and growth. This helps him to attract business partners and investors to continue to grow his brand and his restaurant chain. Fantastic. The LLC will protect Tod, his family, and his business for years to come.
Or perhaps Tod has a bigger mindset. He sees a need for a large produce company in his area. He can import fruit from growers in the area, sell it at a marketable increase, and continue to grow from there. He incorporates because this business will have a great deal of turnover. Taxation will be extensive. He needs to sell stocks from his company for initial investments and future growth.
This is a corporation and is the single hallmark difference, on the surface, between LLC and corporations. LLCs have members, part of the team, who own a certain percentage of the company. Corporations have stocks which, while they entitle an employee to a percentage of the company's profits, can be traded and sold for monetary gain. LLCs don't have that option available.
To look deeper into this, corporate markets and LLC markets are often very similar. As the two start out, you see a lot of competition at the same level. Beginners, after all, will be beginners and need to "get a foot in the door", so to speak.
Once the two begin to diverge, you see the similarities begin to fade. Management of each branch of the company becomes subtlety different. LLC and corporations have different strengths and different weaknesses, with each needing to be addressed throughout.
Both options allow the owner of the business to diversify those who have stakes in the company. Both options allow the business to participate in a tax bracket that may benefit the individual business owners more than if they were not incorporated or an LLC. Last but not least, each provides a snapshot of the company's potential for those who are interested in investing or partial ownership.
While corporations have been around forever, LLCs are still the new kid on the block. This doesn't mean you'll appear outdated by being a corporation, just that your business will have a weightier bearing to it.
In taxation, corporations generally have a more extensive tax structure than LLCs. This leads them to be taxed as type A company or type S company, with LLCs always falling in the second category--if they require business taxation of that sort at all. If your company is still small, there is little reason to put yourself through corporate taxation unless it benefits you--always check with your accountant. State laws do differ from here and there.
Corporations are also, almost always, required to have yearly stock meetings. If your business is managed by remote work or it is simply not productive to do this with your stakeholders? It may not yet be time to become a corporation. An LLC may be a better bet for you and your associates for right now.