Resources & FAQ's

Is an LLC or Corporation best for my business?

Historically, corporations were a desirable business form because they offered shareholders limited liability for acts of the corporation, and when tax rates were materially higher for individuals than for corporations, there was a potential for tax savings. However, today there are a number of business forms that offer both limited liability and potential tax savings, as well as other benefits the corporate model does not offer. One such option is the limited liability company. Like a corporation, a limited liability company is formed by filing Articles of Organization with the State. Like shareholders of a corporation, all members of a limited liability company have limited liability, including managing members. However, unlike a traditional corporation (called “C-Corps”), the members of a limited liability company are treated as partners for tax purposes, and are taxed directly on the company’s profits. Thus, the profits of a limited liability company are taxed only once at the member level, whereas C-Corps are considered separate legal entities and consequently are taxed once at the corporate level, and then again at the shareholder level when income is distributed. However, this double taxation of corporations has been softened somewhat. Certain corporations can also elect to be taxed only once if they qualify as sub-chapter S corporations, also called “S-Corps.” The biggest advantage of the limited liability company model is the flexibility it offers over corporations, especially in the area of how profits are distributed. Under the corporate model, profits are distributed proportionate to stock ownership, whereas the members of a limited liability company can agree to allocate income in a manner disproportionate to their ownership interests. This is just one of the advantages that may be of interest to you as a business owner. Before forming a business, you should discuss the variety of business entity models now available with your business and tax advisors to determine which entity best suits your needs.