Small business owners should consider the advantages of both a corporation and a Limited Liability Company (LLC) when forming a new company. Selecting the right structure can help you maximize your chances for success. Though corporations and LLCs can both help protect personal assets from business debts, they differ in the following respects:
Advantages of a Corporation |
Advantages of an LLC |
- May issue shares of stock to attract investors
- Corporate income splitting may help lower overall tax liability
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- Has no limit to the number of owners
- Owners can report profit and loss on their individual tax returns
- Not required to hold annual meetings or record minutes
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Disadvantages of a Corporation |
Disadvantages of an LLC |
- Double taxation of corporate profits and shareholder dividends
- Must hold annual meetings and record minutes
- S Corporations have restrictions on number of owners
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- Cannot engage in corporate income splitting to lower tax liability
- Cannot issue stock
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LLCs
"Most people think that LLCs are probably the wave of the future, except for companies that eventually are interested in going public." LLCs are the most flexible when it comes to organization. For example, there's also less paperwork involved with running an LLC than a formal corporation: No year-end minutes, no notification of shareholders of meetings and so on. They also tend to be more informally run than a regular corporation.
