Many new clients ask me whether to form a corporation or a limited liability company. There are few tax differences, but, in most states, forming an LLC requires less disclosure of owners of the company.
1
Choice of Entity for New Companies
A lot of new clients ask me whether they should form their company as a corporation or a limited liability company. A corporation is generally required to disclose, in its yearly filings, all of its officers and directors. An LLC, on the other hand, has only to disclose its Manager, and therefore some people prefer LLC's for that reason. There are few tax differences between an LLC or a corporation, assuming that the corporation elects "S" status, as both entities are taxed as a "pass through" entity, that is, all taxation is at the individual owner level. LLC's offer greater flexibility in structuring compensation to owners and investors, so an LLC is generally preferred if the new company will be having passive investors.
2
Forming the Entity
Forming either an LLC or a corporation is easy to do, and can be done by your legal counsel quickly. If you are forming a corporation, make sure that your legal counsel also provides a set of bylaws and the minutes of an initial meeting. If forming an LLC, an LLC Operating Agreement should be drafted. Observing these corporate formalities is important to maintaining your entity as a separate entity for tax and liability purposes.
Comments - add comment