In today’s legal environment, business owners are always looking for the next best way to protect themselves. Most business structures are either Corporations or Limited Liability Companies. Both are excellent choices, and both can be extremely costly if used incorrectly. I will not be able to advise you which you need to do, because it depends on what your business plan and goals are. But let me try to clarify a little of the mystique of Corporations and Limited Liability Companies
Both are allowed to exist under the laws of the state in which you are doing business.
Corporations are taxed either as Subchapter S Corporation or Corporations.
Limited Liability Companies get to choose how they are taxed (Sole Proprietorship, Partnership, S-Corporation or regular Corporation.
So it is possible to have the liability protection of the Limited Liability Company, but tax benefits of the Subchapter S Corporation.
Profits split, loss allocation, and ownership percentage are determined only by the number of stocks a person owns in the Corporation.
A Limited Liability Company can allow profits to be allocated higher to a more active partner, and losses are allocated heavier to a silent partner, but both still own 50% of the company. The splits are agreed upon inside the operating agreement, not determined by capital ownership percentage.
Another area is that the ownership of a Corporation is held in your personal name and is considered personal property, subject to forfeiture and seizure. Ownership in a Limited Liability Company is also property, but because of the operating agreement, a creditor cannot levy or seize your ownership in the LLC.
There are several more distinctions that need to be discussed in determining which entity is best for you. Give us a call so we can help you decide on the front end and not have to correct on the back.