What Are The Differences Between An LLC And A Corporation?
When you go into business for yourself, one of the most important decisions you will make is regarding the selection of the type of entity you would like to create with the State of Florida’s Division of Corporations. Before selecting which type of entity to create, it is important for the business owner to evaluate what each type of entity has to offer to the business owner with respect to personal liability protection, taxation, ownership, and adherence to formalities. If you do not consider these matters beforehand, you could be setting yourself up to potential exposure to personal liability and/or tax implications at a later date. Rather than let this nightmare scenario develop, it is best to understand what the major differences are between entities such as a limited liability company and a standard for profit corporation. However, please note, while you may find that the information provided below is helpful, since there are major differences between the two types of entities, and since there may be times when it may be smart to set up a more complicated entity structure, it is recommended that you always consult first with experienced Orlando business law attorneys such as the attorneys at Nishad Khan PL for guidance.
Limited Liability Company
A limited liability company, also known as an LLC, is similar to a corporation but does have some key differences. For example, unlike corporations, a limited liability company does not require adherence to the strict meeting requirements and other formalities that are required when operating a Florida corporation. Less stringent requirements result in: (a) giving the members greater flexibility when setting up the management and the ownership structure of the LLC, (b) having less stringent recordkeeping requirements relating to the LLC, and (c) providing the option of simpler taxation so that any profits and losses “pass-through” the entity and flow directly to the members of the limited liability company. Yet before embarking on the formation of an LLC, discuss your plans with an Orlando business law firm you can trust.
If you are choosing to start a business where you will be seeking outside investors, a standard corporation may be recommended. A corporation differs from an LLC in that it has stricter meeting requirements, requires greater corporate formality obligations, and at times, greater simplicity in taxation. Therefore, always seek advice from Orlando business attorneys who have years of experience helping their clients understand the nuances of corporations.
Same Form of Liability Protection
While there are differences between an LLC and a corporation, one thing that is common between the two is the form of liability protection they provide to their owners. Whether you form an LLC or a corporation, the entity will shield the business owner from any personal liability associated with your business’ debt; however, there are certain caveats to this, which is why it is important for you to seek an experienced Orlando business lawyer to ensure that your entity is set up correctly. This can be crucial should your company be sued, since failing to have this protection could potentially mean personal and professional financial ruin. If you have additional questions about liability, address your concerns with experienced Orlando business lawyers at Nishad Khan, PL.
Ownership Structure for Each Entity Type
In an LLC, owners are called members and each member owns a percentage of the business.
In a corporation, owners are called shareholders and each shareholder is given shares of stock in the business. Percentage of ownership in a corporation is dependent on the amount of shares that are sold to each shareholder. Thus, if you issue 5,000 shares of stock and you own 2,500 shares, you will then own half of the corporation.
However, it is important to be aware that a business owner can elect to be treated either as a C Corporation or an S Corporation when setting up an entity. Each type of corporation comes with its own specific requirements, for example, an S Corporation election would only be available to U.S. Citizens, so rather than let these complexities result in costly financial mistakes, rely on the advice of a business attorney Orlando residents have trusted for years.
When it comes to taxes, there are some situations where you may prefer to set up one type of entity over another. For example, while a C Corporation has its benefits, it may have greater exposure to taxation at the corporate level as well as the shareholder level when any of the corporation’s dividends are paid out to its shareholders.
Also, at times, it may be to your benefit to combine some elements of one entity with another. For example, while a corporation may only be taxed as either an S or C corporation, an LLC has the flexibility to also be taxed as either an S or C corporation, or instead to be taxed as a sole proprietorship or a partnership dependent on the structure of the entity. Thus, it may be to your benefit financially to combine elements of both an LLC and a corporation so that you can take advantage of the various tax laws that may be available.
To ensure you make the best decisions for the short and long-term, consult today with a business attorney in Orlando such as Nishad Khan.