At some point in your small business career, you probably will be deciding whether or not to form a corporation or a limited liability company. The big question is which is best for your business?
You might be surprised, but there is no right or wrong answer. Both structures have positives and both have negatives. Your goal is to find the one that works best for your current situation and business needs. Also keep in mind; the decision of which entity is best may change in the future based on your company?s profitability, growth, ownership, state & federal taxes and many other variables.
One other thing that is important to note is that you will probably not be able to assess all variables yourself without the assistance of at least a good business accountant and possibly a good corporate attorney. This article will give you a basic understanding of the differences. However, I can pretty much guarantee you that your situation is different enough that you will want to seek expert counsel before making this decision.
In the past, the cost of forming a corporation and later a LLC (LLC?s are a fairly recent creation) were cost prohibitive for many small business people because of excessive state and attorney?s fees. Consequently, many small businesses remained as sole proprietorships or partnerships until it made financial sense to form an entity. State fees have come down significantly in most states and incorporation services, like this one, and other competition have lowered the cost of filing an entity.
Now, most small businesses should be either a LLC or corporation! Whether you are just starting your business or you?ve been in business for a while, there are simply too many reasons not to form an entity. The two biggest reasons are limiting your personal liability for business debts and judgments and federal (and sometimes state) income tax savings.
Probably the best reason for forming either an INC or LLC for your business is to protect your personal assets from business liability. Generally, your business liability is limited to the assets that are owned by the INC or LLC. This means that your personal assets (i.e. home, auto, retirement accounts, etc.) potentially aren?t at risk because of your business debts or liabilities.
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