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Choose a Business Structure

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Corporation vs. Limited Liability Company

Compare:

    • When to use
    • State filing & filing fees required for creation
    • Ongoing state filings and fees
    • Length of existence
    • Administrative requirements & ongoing formalities
    • Who manages the business
    • Liability protection
    • Raising capital
    • Taxation
    • Self employment tax
    • Interest transferability

Corporation

    • Own a business, publicly traded company, to take advantage of lower corporate taxes compared to individual income taxes, to deduct medical expenses.
    • Articles of incorporation must be filed with the Secretary of State and necessary filing fees paid.
    • An annual report is due every year.
    • The entity may live forever without interruption by death of shareholders, directors, or officers.
    • To maintain corporate status, ongoing formalities include:
      Adopt and maintain bylaws
      Hold and document initial and annual meetings of directors and shareholders
      Issue stock
      Record stock transfers
    • Managed by shareholder elected directors and officers.
    • Owners typically are not personally responsible for business debts and liabilities.
    • May borrow money, issue bonds, sell common and preferred stock, enter into investment contracts
    • Generally taxed as a "C" corporation. Shareholders are subject to double taxation. No self-employment income tax on distributions.
    • Salary subject to self employment tax.
    • The assets may be sold, transferred, pledged, or mortgaged simply by using stock

LLC

    • To own real estate. To hold cash for asset protection. To own stock in one's corporations.
    • Articles of organization must be filed with the Secretary of State and necessary filing fees paid.
    • An annual report is due every year.
    • May designate any period of duration.
    • To maintain LLC status, ongoing formalities include:
      Operating agreement
      Hold and document initial and annual meetings of members and/or managers
      Issue stock
      Record stock transfers
    • LLCs have an operating agreement that outlines the management of the business. Can be member-managed or manager-managed.
    • Owners typically are not personally responsible for business debts and liabilities.
    • May have any number of investors.
    • Generally treated as a partnership or sole proprietorship. Subject to one level of tax. May be taxed as a "C" or "S" corporation. Distributions may be subject to self-employment income tax.
    • Salary subject to self employment tax.
    • Limited transfer of interest - an investment is illiquid since all members must vote to transfer a member’s interest




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