If you’re starting a new business one of the first items on your to-do list should be deciding what kind of legal structure your business will have. Picking from this list can be a steep order. There seems to be a vast cornucopia of abbreviations to choose from. The most common kinds of business structures are LLC and corporations. There are pros and cons to each style and you should spend some time considering each option. Your decision will make a big difference come tax time and if your business ever gets sued.
LLC stands for limited liability corporation. One of the biggest advantages of going with an LLC over a corporation is saving on property tax. If your business will own property that is expected to appreciate in value over time an LLC might be right for you.
When you sell the property or liquidate the company you have to pay double taxes on the accrued value of the property if your business is structured as a corporation, because both the corporation and the shareholders are taxed. However, as an LLC you can avoid this and only be taxed once.
An LLC works great, especially if your business only has a handful of investors, but if you want to have a lot of different investors a corporation might work better. As a corporation you are able to easily issue certificates of partial ownership to your investors, which will make them feel safer about investing in your company.
Assuming you will be both a shareholder and an employee, going with a corporation will make you eligible for certain tax-deductible fringe benefits like health insurance premiums.
As a corporation you can also offer your star employees a stock option as an incentive to stay with the company. Since LLC’s don’t have stocks this would be impossible to do with an LLC.
Picking which structure is right for you is a very important part of forming your business. If you need help with business formation call the experienced business lawyers at Baysinger, Henson, Reimer & Cresswell.