Should i start an LLC or c corp [Expert Guide]

Last updated : Sept 14, 2022

Which is better C corporation or LLC?

Both types of entities have the significant legal advantage of helping to protect assets from creditors and providing an extra layer of protection against legal liability. In general, the creation and management of an LLC are much easier and more flexible than that of a corporation.

Is it better to start a corporation or LLC?

In general, corporations have a more standardized and rigid operating structure and more reporting and recordkeeping requirements than LLCs. LLC owners have greater flexibility in how they run their business. Taxwise, LLCs have more options than corporations.

Should I start an LLC or S corp or C corp?

The LLC is a low-maintenance legal entity that's best for a simple business. An S corporation is a tax status created so that business owners can save money on taxes. A C corporation is a more complicated legal entity that's best for businesses looking to keep profits in the business.

What is one advantage of forming a C corporation instead of an LLC?

One advantage of a C corp over an S corp or LLC is that it has an easier time attracting investors, including obtaining capital through equity financing. Owning shares is generally considered preferable to owning LLC membership interests. Also, venture capitalists prefer to invest in C corporations.

Why choose an LLC over a corporation?

You may prefer an LLC if you: want a high degree of management flexibility in running your company. want to allocate profits and losses based upon criteria other than ownership percentage. prefer to avoid the state-mandated requirements imposed on corporations, such as annual meetings.

Can you change from LLC to C Corp?

It is possible to change a limited liability company (LLC) to a corporation, and it's a simple process in many states. But if you only want to become a corporation for its tax advantages, you can also remain an LLC and elect to be to be taxed as an S corporation.

What is the downside to an LLC?

Disadvantages of creating an LLC States charge an initial formation fee. Many states also impose ongoing fees, such as annual report and/or franchise tax fees. Check with your Secretary of State's office. Transferable ownership. Ownership in an LLC is often harder to transfer than with a corporation.

At what point do I need an LLC?

If you have business partners or employees, an LLC protects you from personal liability for your co-owners' or employees' actions. An LLC gives you a structure for operating your business, including making decisions, dividing profits and losses, and dealing with new or departing owners. An LLC offers taxation options.

What does an LLC not protect you from?

Finding negligence and wrongful acts Issue: An LLC will not protect a member from liability for his or her own negligent or otherwise wrongful acts that cause injury to another, such as assault or fraud.

Which is better for taxes LLC or S-Corp?

LLCs. As an LLC owner, you'll incur steep self employment taxes on all net earnings from your business, whereas an S corporation classification would allow you to only pay those taxes on the salary you take from your company. However, itemized deductions could make an LLC a more lucrative choice for tax purposes.

What are the 3 types of LLC?

• Single-member LLC for the sole-proprietorship (solo entrepreneur)
• Multi-member LLC (member-managed LLC or manager-member LLC)
• Domestic LLC and Foreign LLC.
• Series LLC.
• L3C Company (low-profit LLC)
• Anonymous LLC.
• Restricted LLC.
• PLLC and LLC.

Is it better to be self employed or LLC?

You can't avoid self-employment taxes entirely, but forming a corporation or an LLC could save you thousands of dollars every year. If you form an LLC, people can only sue you for its assets, while your personal assets stay protected. You can have your LLC taxed as an S Corporation to avoid self-employment taxes.

How do C corp owners get paid?

There is generally one way to pay yourself from your C corp: as an employee. More specifically, if you're involved in the day-to-day operations of running your C corp, then you're considered a W-2 employee. Therefore, you will receive compensation via a W-2 that will also be subject to payroll taxes.

Why would you choose an C corporation?

Why choose a c corporation? C corporations provide limited liability protection to owners, who are called shareholders, meaning owners are typically not personally responsible for business debts and liabilities.

What is tax rate for C corp?

A C-corp simply applies the corporate tax rate of 21% to its taxable income.

Whats the difference between LLC and C Corp?

LLCs are considered pass-through entities for the purpose of US taxation; they don't file taxes in their own right, but have their income reported on the personal income tax returns of their owners. C corporations file their own tax returns.

How do multiple owners of an LLC get paid?

Each member has a capital account. To get paid, LLC members take a draw from their capital account. Payment is usually made by a business check.

When should you convert LLC to C Corp?

1. Better chance of raising venture capital money. It can be difficult to fundraise from investors as an LLC.
2. Easier to offer employees equity. If you want to extend equity to your employees in an LLC, your options are limited.

Do you need a new EIN when converting LLC to C Corp?

Generally, businesses need a new EIN when their ownership or structure has changed. Although changing the name of your business does not require you to obtain a new EIN, you may wish to visit the Business Name Change page to find out what actions are required if you change the name of your business.

How do I start my own C corporation?

1. Select a business name.
2. File articles of incorporation.
3. Obtain an Employer Identification Number and a bank account.
4. Create an operating agreement.
5. Name a registered agent for the business.
6. Name a board of directors.
7. Issue stock certificates.
8. Apply for licenses and permits as necessary.

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are you considering if your business should be a llc or a c corporation do you know the difference between the two well stay tuned because this video will take a deep dive into the differences and similarities between an llc and a c corporation and also i'll be discussing which might be the best option for your business i'm crystal cpa and co-founder of life accounting where we like to teach and empower small business owners to take complete control of their financial picture today i will be discussing the key differences and similarities between an llc and a c corporation especially the tax differences and what you could expect to pay in taxes with each type i'll also explain the compliance requirements of each and how you can decide which is best for your small business now to be fully transparent here i'm not a lawyer and by no means am i giving you legal or financial advice but i am a licensed cpa and i will break down the gist of the legal jargon and especially focus on the tax items so you can avoid paying too much in taxes and as we all know or should know how you decide to structure your business significantly impacts the amount of taxes you pay after all taxes are your biggest expense all of which and more i'm going to explain to you in this video make sure to subscribe to our channel if you're new we publish videos almost every single day and i'm confident that one some or all of them will help you navigate accounting and tax in your life all right let's dive in one of the biggest differences between an llc and a c corporation is taxation this is probably the single most important difference to understand and you should be aware of it c corporations experience double taxation double taxation means the c corporation as an entity pays taxes on its income and when you the shareholder of the c corporation takes money out in the form of the dividend or distribution you are also taxed personally so with a c corporation you are paying taxes twice on the same income did you catch that the income is first taxed through the business with corporate income taxes this income already includes the distributions or dividends that you took out of the business then it's taxed again on your personal return for any amount you took out of the business in the form of a dividend or distribution the current corporate tax rate is 21 and the federal deadline to file and pay these taxes is april 15th on form 1120 and the individual tax rate on corporate income would depend on your personal tax rate and consider all of your income from all sources on the other hand llcs only pay tax on the individual level as a default meaning the llc entity does not pay taxes directly unlike in a c-corporation situation but the income earned through the llc is passed to the owner where taxes are assessed this is called pass-through taxation most llcs are single members so those tax returns are due april 15th for multi-member llcs or s corp llcs those tax returns are due on march 15th however as an llc owner you can actually decide how you want your llc to be taxed so you can be taxed as a sole proprietor an s corporation and even a c corporation so as you can tell an llc offers you more flexibility in taxation whereas with a c corporation not so much you're going to be double taxed another difference is how llcs and c-corporations are formed there's a lot more administrative work with forming a corporation first corporations are required to have articles of incorporation which is simply a set of documents that are filed with the state to legally document the formation of the corporation second there's the corporate bylaws which are a set of rules and regulations adopted by the corporation third you have to elect a board of directors the board of directors represent the shareholders of the corporation fourth you have to hold a board meeting which is a formal meeting with the board of directors to discuss performance and other major issues in the corporation fifth you also have to hold a shareholders meeting which is a formal meeting with the shareholders of the company to vote on specific issues and review finances both board and shareholder meetings are required to occur at least once a year and details of those meetings must be kept in the meeting minutes in order to maintain corporate status sixth and finally you have to issue stock and shares in the company based on what was invested as capital in the corporation that's a lot most corporations seek the help of an attorney to form their corporation forming an llc is much simpler first you need to have your articles of organization this is a similar document to the articles of incorporation for c-corporations next you should have an operating agreement similar to the by-laws which outlines how your llc will operate it's important to note that both the operating agreement and bylaws and even the articles of incorporation and organization are legally binding documents it is very important to understand what is being included in these documents because they could come back and bind you later on the last difference i want to touch on is the ownership of each a corporation can issue shares of stocks and sell percentages of the business to its owners or shareholders these shareholders can then buy or sell their shares for more or less ownership in the company a corporation also exists in perpetuity separate from its shareholders meaning that a corporation remains in existence even when a shareholder leaves the company an llc has the freedom to distribute its ownership stake to its members without regard to a member's financial contribution to the llc for example a member of an llc may not have invested as much capital as another member however an llc's operating agreement could specify that all members receive an equal share of the profits anyway this creates more flexibility when establishing the ownership of the llc all right so we've talked a lot about the differences between an llc and a c corporation but what about the similarities well for one both llc's and c corporations offer its owners limited liability for llcs this is literally a part of its name limited liability company but what this means is the owners of the llc or corporation are not personally liable for the company's debts or liabilities so basically if someone sues your llc or corporation they cannot go after your personal assets like your house or personal funds another similarity is that llcs and corporations can both be owned by u.s and non-us individuals which is not the case for s-corporations llcs and corporations also allow you to have unlimited owners which could be helpful if you're planning on starting the next fortune 500 company which actually brings me to my next point which one is right for your business again i'm just a cpa so i can only really speak from that perspective but for most business owners llcs tend to be the better choice llcs are the definition of flexibility they give you the choice of how you want your partner's ownership percentages to be allocated not to mention you can choose how you want to be taxed so if for some rea

Thanks for your comment Maxwell Holdsworth, have a nice day.
- Kathrin Fought, Staff Member

hey everybody welcome to startup basics it's your host Jason Calacanis you know me as the host of this week in startups and you know one of the things that we like to do on this program is try to help startups like it's kind of the whole mission of the launch festival in this week in startups and I get asked the same questions over and over again so I actually had lunch with my good friend here Todd carpenter from Wilson Sonsini WS gr and we've known each other for a decade or so a long time working with Steiner startups and Rachel you've been at the firm for over a decade over a decade as well Rachel profit and so we just talked about okay what do we do why we do a series where we answer like every question so then we can just send people to that link and at least get them through the basic question so that's what we're doing here at startup basics we're like 10 questions out of 20 that we're going to do and so I asked Rachel and Todd to come and answer one that I have made so many mistakes on in my career and gotten bad advice and now that I'm 20 years into my career I think I know how to do this right but this is the question of what type of corporation should I make should I make an LLC an S corp or a C Corp and now there's even this B Corp thing which I guess we could get into too but let's just start with if I'm starting a company in Silicon Valley like it's a tech startup I'm not talking about building a pizzeria you know or consulting primitive I'm going to start a tech company what should I do S Corp C Corp or LLC easy short answer is C Corp right Delaware C Corp why and what is the difference between these three types so that is the right answer and twice in my career I did an LLC and an S Corp because I had like rank e dank attorney is like mom-and-pop shops or telling me like oh do LLC do s because you can get this savings or that savings but what's the difference between each one well I would say to begin with that they may have given you the right advice for the particular company I think the the point is that it's very company specific so you want to set up the right entity for the right corporation the right company that you're working on for the right business the biggest difference if you look at the LLC of is the escort versus the c-corp the LLC and the escort bar flow through tax entities which means that you can avoid a level of corporate tax escort and a c-corp are largely the same other than the tax treatment and a filing that you need to make with the IRS to elect affirmative ly to be an escort got it and so if you're doing a mom-and-pop shop that's when people tend to do these LLC's or smaller companies like s quiz S Corp stand for small or no it's just an election under the tax code yeah Ashley needs being small it doesn't actually mean small cuz somebody told me it's some way to mean small company I was like really no it doesn't actually mean that no and it doesn't have to be a small business it could be it's just there are restrictions on what types of shareholders in the number of shareholders that you can have in an S corp so it's prohibitive to do that if you're going to be a Silicon Valley company yeah I mean every single company in Silicon Valley is a secret right I'd say for the most part I mean and we end up dealing with a lot of founders that come in and say I've been in S corp I'm an LLC and I have a term sheet but one of the conditions to getting funded is in fact that we go through a conversion process so we spend a lot of time counseling folks who probably got advice similar to yours yeah I want to be like a normal look like everyone else C Corp and what does that process like of like actually changing it it's expensive isn't it can be we're chatting about this today we're going through a couple of these with some clients right now I mean they can be cost per head really expensive sometimes really if you're just running in a seed financing sort of circumstance right you want to raise fifty thousand hundred thousand bucks like you pie don't want to spend exorbitant of money converting yeah the sooner you do it in your corporate lifecycle the easier right there's less contracts to think about less tax consequences to evaluate maybe need less of your accountants time to figure it out and they're not impossible but they can be complicated and expensive now when you want to shut one of these companies down what about that process because that's something I've had happen as an angel investor where I was an angel investor in an LLC or in an S corp or even a C Corp and then nobody shuts it down and I'm getting notices or somebody says they did shut it down and I'm getting notices why is shutting these things down so hard and how does that work well it's largely hard because there if you do it properly there's a lot of statutory procedure that you have to go through to get it done and it's large designed to protect the people the creditors of the company and the the jurisdictions in which the companies do business or are formed because there are franchise taxes owed so you need to jump through all those hoops of making sure you paid all your taxes that you paid all your creditors and so there is a this whole process that you have to go through it's not super challenging it's just a lot of Hoops to jump through so oftentimes because there's the the shield of liability when these companies are early-stage you'll see entrepreneurs that basically just turn the lights off and walk out the problem with that is for years and years to follow you're going to get these notices from the state and if you're the only credible guy that's left standing it may well come to your address and that's really frustrating for folks yeah that has been frustrating for me like literally I had some things where we sold companies to AOL or whatever I'm still getting these things and I'm like can we just shut this down and then I wind up having to pay a small fee or whatever to finally shut them and just to stop getting the mail let's talk about the big work because I invested in one hand up is a great company that we invested in that is helping homeless people by building profiles of them on the web where they can basically communicate and what they need in their life whether it's dentures or a place to live and then get donators and serial donators we give a little bit each month it's really working wonderfully but it's a B corporation and this to me as an investor I had a really hard time trying to figure out what this is because I'm investing but it's not a non-profit so they make a profit but there's a benefit so what is this it's interesting you say that you're probably on the cutting edge of investors willing to entertain this yeah are exactly that reason so it's been around for a little while yeah I think adoption rates have been low for exactly that reason because you know the principle is set out in many jurisdictions to allow a public benefit corporation which basically means companies get to focus on something in addition to just the bottom line right may not necessarily be just to maximize profit we may also want to d

Thanks RobeniD your participation is very much appreciated
- Kathrin Fought

About the author

Kathrin Fought

I've studied x-ray astronomy at Saint Mary's College of California in Moraga and I am an expert in photonics. I usually feel hot. My previous job was stationary engineers I held this position for 9 years, I love talking about pyrography and garage saling. Huge fan of Andy Samberg I practice wakeboarding and collect banknotes.