LLCs Vs. Corporations
Down economies are often accompanied by an increase in the number of startup companies and entrepreneurial ventures. These times also are when many established businesses will choose to restructure themselves to become more competitive and to save money wherever possible.
In either case, choosing a business organization type (i.e., legal structure) is one of the first and most important decisions that must be made.
Since 1981, the attorneys at Benckendorf & Benckendorf, P.C., have been helping clients make business organization choices that fit their individual needs. To learn more about how we can help you, call us directly or contact us online to schedule a consultation.
Limited Liability Companies, C Corporations and S Corporations
Because of the personal liability risks associated with partnerships and sole proprietorships, the business entity choices for many small companies often get narrowed down to the limited liability company (LLC) versus the S corporation or C corporation.
Which option is right for you? That answer is completely dependent on your unique situation. Even so, a few things are important to keep in mind.
The first issue is taxes. An LLC’s default tax accounting classification is either a sole proprietorship or partnership. These classifications work especially well in the early years of a business when profits may be minimal or non-existent, or for businesses with real estate holdings or other passive investments. However, for income tax purposes, you still may want to have the LLC reclassified as an S or C corporation, particularly if self-employment taxes are likely to be high.
Another important consideration is ease of use. Generally speaking, an LLC is a much more flexible, easy-to-use structure, especially when a limited number of investors or shareholders is involved. Conversely, a corporation might be better suited to your needs (despite the more rigid structure and record-keeping requirements) if you have many investors or are planning on providing significant fringe benefits to yourself or key employees.