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Once you have decided to open a business, one of the first things you will need to define is the kind of business you want to operate. There are a multitude of different shapes your business can take, but two of the most popular are corporations and limited liability corporations (LLCs).

Each of those business types comes with its advantages and disadvantages, and determining which is right for your budding enterprise will depend on your goals in operating your business and the hurdles you hope to avoid.

LLC vs. Corporation: Which is right for me?

Both LLCs and corporations share some common features. One of the most impactful similarities is that both offer owners personal liability protection, which keeps owners’ personal assets from being seized by creditors to satisfy the debts and obligations that the business incurs. 

Despite the similarities, however, only you can decide whether creating a corporation or an LLC is the better option, as there are significant differences to consider between the two as well. 

With that said, the following questions — and your answers to them — will help you make a more informed decision: 

How much time and experience do you have?

One of the chief benefits of setting up an LLC is that they are inexpensive, quick to form, and easy to manage. The annual reporting requirements are, likewise, not burdensome, thus leaving you more time to manage your business and any employees you have.

Conversely, setting up a corporation requires more detailed articles of incorporation and operating agreements. The corporation’s structure will be more formal, and its annual reporting requirements will be more detailed and involved.

Are you concerned about taxes?

If you set up an LLC, the default tax arrangement is that the LLC’s profits will pass through to you and any other owner, or “member,” who can then report and pay taxes on the profits the LLC earned as part of their individual personal tax returns. The LLC itself does not have to pay any taxes on its earnings.

The profits of a corporation are subject to double taxation. The corporation will file its business tax returns and pay taxes on any profits realized. If the corporation makes a distribution of its profits to its owners or shareholders, they must also report those distributions on their individual tax returns.

How important is outside investment?

If you determine that you do not need outside investors to start or support the operations of your business until you turn a profit, an LLC may be an acceptable choice. Otherwise, you should primarily consider starting a corporation, as corporations can issue shares that are then bought by outside investors to help support the business. 

Additionally, a corporation’s shares are often easier to transfer than a member’s interest in an LLC. If you anticipate that individuals may want to join or leave the business venture frequently, a business formation attorney may recommend (and help) you create a corporation.

Where to Get Additional Help Understanding an LLC vs. Corporation

The decision of whether to form an LLC, a corporation, or any other type of business should not be made lightly. Each business type has advantages and disadvantages, and a hasty choice of business form can lead to later headaches and struggles for you and your business enterprise.

A Dallas business attorney from The Sul Lee Law Firm is available to assist you in making such an important decision. Your business formation attorney will take the time to understand your background and what you hope to achieve with your business, then advise you on the best business structure for you and help you get your business off and running.