Corporation or LLC: Which Form is Best?

corporation or llc
Business Lawyer Asheville, Hendersonville and WNC

Corporation or LLC: it’s a question I get all the time. The answer is not so simple as going down a checklist though. You need to consider many factors. Who will be making decisions. How profits will be split. What your personal tax situation is. And asset protection. I work with a CPA and commercial insurance agent, and of course you, to find the best solution. We’ll consider how decisions will be made, what authority owners will have to make the decisions or appoint officers, what the tax benefits are of either form, and how to protect assets.

Corporation or LLC:

The benefits of the corporate form are that it’s been around hundreds of years. Its internal workings are well understood by investors and judges. Similarly, most people easily grasp the concept of the benefits of owning a share in a corporation (including the right to vote on corporate affairs, and the right to receive a share of the corporation’s profits). Conversely, “S-corporations” have restrictive ownership limitations such that all investors may not qualify, thereby giving up the tax benefits of forming an s-corporation.

Limited liability companies on the other hand are a fairly recently developed business form. Their tax treatement can quickly get complicated. If an LLC has more than one owner, the management, decision making, and profit splitting structure can get complicated fast. The cool thing about limited liability companies, though, is that there is tremendous flexibility in setting up the management, decision making, and profit splitting structure.

I’ve actually worked with clients that set up one structure to start their business, not knowing what they’re doing. They only decided later that the other structure would have been more beneficial tax-wise and direction and control-wise. This is why I always ask new businesses to tell me about their five-year plan for their business – so that we can structure the bones of their business to accomodate their long range goals.

Contact me if you have any questions on business transactions. In western North Carolina, Asheville, Waynesville, Hendersonville at (312) 671-6453.

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