The decision on how to incorporate a new business is one of the most crucial any business owner will ever make. To make the right choice, a business owner needs to consider his or her goals — business, personal, and financial — as well as future interests.
Generally, business owners who choose an LLC structure instead of a Corporation do so because of the flexibility LLCs offer when it comes to taxation and management. However, there are certain situations where a Corporation may be the better choice:
If you want or need investors. An LLC has limitations on liquidity and issuing stock that a C Corp does not, making the C Corp structure more attractive to investors.
If you plan an IPO. It’s a good idea to structure your company as a C Corporation from the outset if you foresee a public offering in your new venture’s future. Since LLCs are governed differently in different states, you would have to change an LLC to a corporation for a public offering.
If you want shareholder and employee benefits. In a corporation, shareholders may also serve as employees, with their salaries deducted from corporate taxes instead of paying shareholder dividends. In addition, shareholder employees are eligible for health insurance benefits that are also deductible for the corporation and not counted as taxable income for the employee. These options are limited for LLCs.
Corporations and LLCs both provide limited liability protection, but have very different reporting processes for keeping that protection intact. If you decide to operate your business as a corporation, you will need written bylaws that detail how the company will operate as well as articles of incorporation. In addition, you will need to keep careful written records of shareholder and Board of Directors meetings as well as key shareholder information and resolutions.
If you decide to operate as an LLC, you will need to have an operating agreement that establishes the rules for management structure, partnership agreements, profit sharing, voting powers, and dispute resolution. An experienced business attorney can help you create these key business documents.
Johnson Legal PC offers effective valued solutions along with exceptional legal expertise and creative thinking for New Jersey and New York businesses. Contact us to learn more about how a great corporate attorney can help your business thrive.
