Which is Right for Your Business? Forming an LLC or a Corporation

If you are an entrepreneur, you have probably had somewhere close to a hundred business ideas run through your mind. Maybe you’ve already taken the plunge to starting your own business and are looking for the next step. When establishing a business, there are plenty of hoops to jump through, one of which is the way to form your company.

A question you may have asked yourself is, “Should I form my business as an LLC or as a corporation?” Here, we’ll help you determine which business structure is best for you.

Forming an LLC or a corporation

Before we cut straight to the chase about what types of businesses are a good fit for each structure, first you need to answer a few questions:

  • Will you be the only employee when you form your company?
  • Do you plan to have fewer than 20 employees?
  • Do you have limited funds?
  • Would you like to have the resource of knowledgeable, corporate law interpretation at your fingertips?
  • Are you open to incorporating in a different state than the one in which you reside?

If you answered yes to any or all of those questions, your business should be incorporated as an LLC, or Limited Liability Company. If you answered no to one or more of those questions, it will be beneficial for you to read more about forming your business as a corporation.

Related: The 7 Benefits of Forming a Corporation

The benefits of incorporating your business as an LLC

If you are ready to incorporate your business in Delaware, an LLC provides a flexible option for startup, along with many other benefits. If you will be the only employee when you form your company, forming as an LLC allows you to declare a one-person corporation. If formed in the state of Delaware, one person can hold two official positions as both the President and Vice President, which is necessary to form any business. Down the line, there could be many tax benefits when forming as an LLC.

Because your company could start with just one or two people, it is likely you only have access to a limited amount of money. Forming as an LLC in Delaware will allow you to only have to worry about paying a small fee for your taxes. Keep in mind that there is an additional fee, should you be late to filing your taxes.

Additional benefits to forming as an LLC also include the opportunity to have a very experienced, corporate law knowledge base right at your fingertips from lawyers in the Court of Chancery. These individuals are prepared to answer any of your business law questions and are able to provide the legal support you may need at any time.

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The benefits of forming your business as a corporation

If you answered no to any of the questions above, forming your business as a corporation is the best option for you.

Corporations are established as formal business entities with an official law base. This means that corporations must keep annual records of their business dealings. In addition to the formalities of a corporation, owners are given limited liability protection when handling the payout of officers and shareholders.

The protection shareholders receive is one of the biggest reasons why individuals choose to form a corporation over an LLC.

In this case, if you were the owner of an LLC and the business was to fold, you would be personally liable for any debts endowed by the business. Forming as a corporation prevents you from carrying the financial weight on your shoulders if the business were to go under.

Whether forming an LLC or a corporation, it is important to be aware of different tax benefits and how they are applicable to your business. Forming as a corporation also means the potential for a large number of tax advantages and the ability to raise capital through the sale of shares of stock.

Forming your business as an LLC or as a corporation has various benefits, and being aware of what you are given with both is important. Whatever your business endeavors are, best of luck as you follow your dreams.

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