What is Right for my Small Business: LLC or Corporation?
When forming a business, you need to pick an entity structure to operate the business that will work well for your personal goals and your new company’s long-term goals. As Provo business attorneys, we work with people to assist them in picking the best structure for their needs.
What is an LLC?
LLC is short for Limited Liability Corporation. It’s a business entity that keeps your finances separate from the business finances. It becomes an independent entity with separate finances, debts, transactions, accounts, and property ownership.
One or more people can form LLCs. If more than one person begins one of these entities, everyone’s name must go into the ownership documents and file paperwork at the state level. Correctly drawing up the paperwork can help you avoid potential Provo business litigation.
Once an LLC forms, the owner can open a bank account on its behalf. Property titles or vehicle titles can transfer into the name of the business. Once money or property transfers to the LLC, it is considered owned by the LLC for business purposes.
If an LLC obtains too much debt and dissolves, you and the others are not responsible for the obligations of the LLC. Income is passed through this entity and taxed on the individual’s income tax return as income tax.
Business attorneys in Provo Utah can help you correctly fill out these documents to avoid adverse legal repercussions later.
What is a Corporation?
Corporations are similar to an LLC but provide even more separation and possible protections. There are two kinds of corporations commonly sought: an S-corp and a C-corp.
Both kinds of corporations are taxed separately from a person’s individual income tax. Sometimes, each type can have pre-tax deductions for payroll, health insurance, and other business expenses.
An individual seeking to remove money from a corporation for personal use does so differently than an LLC. With an LLC, the simplest way a person does this is by transferring money from the business account to a personal account. With a corporation, a person needs to withdraw the money differently. Either the person needs to receive a dividend from the company or through a W2 or 1099 payment to themselves.
That means the corporation owner would have to put themselves on payroll or typically have a contractor agreement put into place. The person will have to declare that income on their personal income taxes. The corporation has to pay income taxes when it receives the money and counts toward profit. Because of this, corporation income is potentially taxed twice.
Suppose more than one person wants to be the owner or partner in a corporate structure. In that case, a business litigation attorney Provo can help keep the verbiage accurate in the formation paperwork to protect all parties.
Which is Best Between the Two for Your Small Business?
It depends on what you want to do with your business over the long term and how you prefer to pay taxes.
If you want to hire several employees, own a fleet of company vehicles, and raise capital with angel investors, then a corporation might be better.
If you want to keep your business and personal expenses, debts, and other transactions separate, may or may not hire employees in the future, and prefer to keep your tax forms down to a minimum, then an LLC might be better for you.
How a Lawyer can Help
Provo business attorneys are skilled at helping you decide whether to use an LLC formation or a corporation formation. As Provo business lawyers, we can make sure you’ve filled out the papers not only correctly but make sure the way you’ve worded the verbiage helps protect you in the long run.
Contact Howard Lewis & Petersen
At Howard Lewis & Petersen, your Utah business attorneys, we’re happy to help you draw up your business application filings. Contact us today!
