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Determining if a LLC or a corporation is right for a business

On Behalf of | Feb 2, 2018 | Business Formation & Planning

When planning for and forming an Illinois business, there are many boxes to check. Depending on the goals of the business, a business owner might make certain decisions. Before the doors of the business can open, major decisions must be made. For starters, one must determine what kind of business they are starting. In other words, should they develop a limited liability company (LLC) or a corporation?

Many factors go into making this decision, such as which one will be better for the business overall, which one is easier to create and the advantages and disadvantages of each option? To determine which type is best, owners should understand how each functions, the benefits and setbacks.

For those starting a small business, many claim that the flexibility and simplicity of a LLC is a better choice. This is especially true for those businesses that plan on owning property, forming a LLC can help the business avoid the problem of double taxes. Because the business’s taxes pass through the owners of the LLC, the owners of an LLC avoid double taxation. In other words, the LLC is not a tax entity itself and is not required to pay taxes on its income.

On the other hand, those owning a corporation could face these double taxation problems, if the business owns property and that property appreciates in value. But, there are many benefits to consider that could come into play when deciding to form a corporation over an LLC. If a business seeks to issue stocks, it must be formed as a corporation. Other advantages include providing benefits to owners, such as a salary and health benefits, and being able to deduct health insurance and benefits provided to employees form its profits.

There are pluses and minuses for starting any type of business. Therefore, it is important to consider your ultimate goals for the business and what type of business formation will help you achieve this goals. Additionally, it can help you avoid any disadvantages, such as double taxation.

Source: FindLaw.com, “Corporation versus LLC,” accessed on Jan. 21, 2018

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