How to Start an LLC or a Corporation: A Simple Legal Guide

Taking the step to officially set up your business is exciting. But it feels a little bit overwhelming, especially when you have to choose between an LLC and a corporation to lay the groundwork for everything that follows, from how you pay taxes to how well your personal assets are protected.

Understanding the “Why”: Protecting Your Dreams

Before differentiating between LLCs and corporations, you need to understand why you’d choose either one. It is all about protecting what you’re building. Operating your business as a sole proprietorship means that you and the business are one. 

Forming an LLC or a corporation creates a separate legal entity that puts a protective shield between your personal life and your business.

LLC vs. Corporation: Picking the Right Structure

Making the right choice between the two depends on your goals for growth and how you prefer to handle taxes. Below are the differences to help you make an informed decision:

The Limited Liability Company (LLC): Flexibility and Simplicity

LLCs are a good choice for small businesses and solo entrepreneurs. This type of business offers flexibility and ease of management. Additionally, it allows you to avoid double taxation by adding the profits and losses on your personal tax return. Lastly, it has fewer formal requirements compared to a corporation, allowing you to concentrate on expanding your company.

The Corporation: Formality for Future Growth

If you want to sell stock, look for investors, or expand your company significantly, corporations are an ideal choice. Despite the extra formalities like a board of directors, careful records, and annual report filings, it is clear regarding ownership and management. You can choose either a C corporation—which is subject to double taxation—or an S corporation, which is subject to certain limitations, but you will avoid double taxation by directly transferring profits to the owners.