Like apples to oranges, comparing LLCs with corporations should be a no-brainer. Right? Wrong. Many get confused at this! But rightly so. After all, both are business entities. Both are specific structures separate from the individual filing for either one. The perks between both are very similar.
So what’s the difference? How do you manage comparing LLCs with corporations?
It’s nerve-racking! After all, choosing the right entity type is critical. It’s one of the first things you should do as an
entrepreneur. But don’t stress….
There are a few distinct differences with very big impact as to why you should go with one or the other. And the good news? We’re going to reveal them right here, starting with:
- You and others can own an LLC whereas “shareholders” own a corporation
What does that mean, exactly?
The implications are that with an LLC, you own the company but are not actually the company. It means your taxes won’t be your company’s taxes. If you’re company gets sued, you won’t get sued.
But with a corporation, not only do you “own” (and potentially others) the company, but the “shareholders” also benefit from the same perks you have. They equally have a stake in the entity as you do — but without legally owning the corporation.
That may not mean much right out of the gate as you’re reading this, but the understanding will come through quite clearly.
- Taxes as a result of that one difference (and more, honestly) wildly vary
Simply put, you have more options with your taxes in an LLC than you do with a corporation. There are, however, way more federal deductions with a corporation given your employees won’t be sharing any ownership of the business.
- Not to mention an LLC doesn’t get the benefit of investors, raising capital, or going public
You have the ability, with a corporation, to have an unlimited number of shareholders benefiting from the business and
purchasing more stock (which means more revenue for your company). Simply put: if your business is doing well, and it attracts investors or shareholders or both, it means big money for you (and for them, obviously)!
- But sometimes taxes and internal operations can be a headache with a corporation
LLCs have tremendous flexibility as a result. Less formalities, less regulations, more straightforwardness. You can even distribute ownership stake to your “members” without regarding how much financial contribution members have provided.
Additionally, even foreign individuals can own your LLC with you. Not to mention members can easily transfer ownership to others without massive legal ramifications.
But with a corporation? Let’s just say…. You must have a Board of Directors, “corporate officers,” obviously the “shareholders,” too — and a partridge in a pear tree.
It can be a lot to deal with!
Which, to sum up, means, ultimately, that how your business will operate matters
It could very well determine for you which entity would be best suited. Often it just means how your trajectory might look for your company — do you plan on going public and looking for investors? You might want to file for a C Corporation or S Corporation. Are you looking to just streamline your taxes, though? Maybe go with an LLC.
But at the end of the day, it’s still a big decision to make. And still a complex one. So here’s one last piece of advice: seek the recommendations of a qualified business attorney. Choosing apples or oranges can be exhausting —
Especially if you mistakingly choose a kumquat.
