How You Can Benefit From a Corporation or LLC
Incorporate Your Business
Regardless of their size, all businesses can benefit from incorporating. Advantages of forming a corporation or limited liability company (LLC) include:
- Personal asset protection. Both corporations and LLCs may allow owners to separate and protect their personal assets. In a properly structured and managed company, owners should have limited liability for business debts and obligations.
- Additional credibility. Adding “Inc.” or “LLC” after your business name can add instant authority. Consumers, vendors, and partners may prefer to do business with incorporated companies.
- Name protection. In most states, other businesses cannot use your exact corporate or LLC name if you already filed.
- Perpetual existence. Corporations and LLCs continue to exist even if ownership or management changes. Sole proprietorships and partnerships just end if their owners leave or die.
- Tax flexibility. Although profits and losses typically pass through LLCs and get reported on the personal income tax returns of owners, LLCs can also elect to be taxed as corporations. Likewise, corporations can avoid double taxation of corporate profits and dividends by electing Subchapter S tax status.
- Deductible expenses. Both corporations and LLCs may deduct normal business expenses, like salaries, before they allocate income to owners.
Selecting the Right Business Structure
To get the most out of your small business, choose the right structure. Selecting the right structure for your new business helps you maximize your chances of financial and operational success.
Choosing a Structure for Your Business
Small-business owners should consider the advantages of both a corporation and an LLC when forming new companies. Selecting the right structure can help business owners maximize their chances for success. Although corporations and LLCs can both help protect personal assets from business debts, they differ in the following respects:
| Advantages of a Corporation |
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May issue shares of stock to attract investors |
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Corporate income splitting may help lower overall tax liability |
| Disadvantages of a Corporation |
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Double taxation of corporate profits and shareholder dividends |
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Must hold annual meetings and record minutes |
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S Corporations have restrictions on number of owners |
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| Advantages of an LLC |
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Has no limit on the number of owners |
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Owners can report profits and losses on their individual tax returns |
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Not required to hold annual meetings or record minutes |
| Disadvantages of an LLC |
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Cannot engage in corporate income splitting to lower tax liability |
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Cannot issue stock |
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