What Do I Need: LLC or Corp?
The very first step in setting up a legally sound business is deciding what type of entity you are: an LLC or a corporation. There are many similarities between the two terms, but there are some key differences that you need to be aware of. Here’s our breakdown of LLCs vs. Corporations.
What is an LLC?
LLC stands for ‘limited liability company.’ It’s a business type that’s recognized in all 50 states and by the federal government.
Liability
LLCs formally separate your business assets from your personal assets. This protects things like your residential home and your personal car from being used as collateral should someone sue your business.
Ownership
LLCs are owned by one or more individuals. Each individual owner is referred to as a member, and each member owns a percentage of the LLC.
Taxes
With an LLC, your profits and losses are typically passed through each owner’s individual tax returns. This can provide tax benefits to both owners and the business as a whole. However, LLC owners are technically considered self-employed, so they have to pay self-employment taxes each year.
What is a corporation?
A corporation is a business type that’s recognized in all 50 states and by the federal government. There are different types of corporations, such as S corps, B corps, and C corps, but they all have similarities.
Liability
Corporation owners are not held personally responsible for their business’s losses. If their corporation gets sued, their personal assets would not be used as collateral.
Ownership
Corporations are owned by shareholders. Any company that issues stocks would be a corporation. So if you foresee yourself accepting external investments, corporations are often the best route to take.
Taxes
Corporations are taxed as their own entities, meaning corporations’ profits and losses do not impact their shareholders' individual tax returns — beyond things like dividend payments. Additionally, corporate shareholders do not have to pay self-employment taxes.
Deciding between an LLC and a corporation is a big decision, and not one you should make lightly. We always recommend consulting with an attorney before beginning the filing process. And of course, an attorney can help you through the filing process too.
To learn how our team can guide you through every step of your business setup, check out The Parsus Toolkit.
