Figuring out how to structure your company seems like such an easy decision, but it’s one that will permanently alter the way that you do business. It impacts everything from how much taxes you pay to how much liability you have in the company itself. There are many different structures out there to choose from, but you can really only claim to do business under one. In order to help you make the best decision for yourself and your company, we decided to offer a quick crash course on the difference between the two biggest categories of business structures.
All About LLC’s
LLC’s, also known as Limited Liability Companies, are one of the most popular business structure choices out there, and for good reason. As the name suggests, LLC’s are made to limit the amount of personal liability you might be responsible for due to company ownership. Unlike many incorporated businesses, Limited Liability Companies don’t require a partner to file.
Here are some of the biggest perks of this business structure, and why so many people choose it.
LLC’s involve no board meetings, and offer minimal work in terms of annual filing. All you have to do is register with the Secretary of State, and annually update your information. There are no board meetings, as there would be with corporations.
They offer a lot of flexibility. In an LLC, the taxes that the company owes are passed onto the shareholders of the company. If you’re the only shareholder, you’re taxed based on the net profits under your own personal capital gains return. If there are multiple shareholders, then everyone gets taxed at an even rate. Since all the taxes are paid on a personal filing, it’s generally easier to deal with.
Your liability is limited. Surprise, surprise! LLC’s actually live up to their name. The amount of personal liability you have is only equal to the amount of money that you invested into the creation of the company.
Taxes and overall costs remain relatively low. It’s one of the main reasons why people choose it. They can’t be publicly traded companies, though. That’s a privilege left only for incorporated companies. Sorry!
All About INC’s
Incorporated companies, also known as INC’s, are basically all corporations. There are two basic structures that fit under this umbrella: the S-Corp, and the C-Corp. Both are legal entities that are entirely separate from the person who founded them, which means that you don’t have any liability. INC’s can act as their own legal entity.
Here’s what you need to know about each, and how they differ.
C-Corps and S-Corps both have to have a board of directors, and are considered to be very high maintenance when compared to LLC’s. You will need to have quarterly board meetings. You will also need to have heavier documentation, too.
INC’s are double taxed. Since they are their own entity, they are taxed as a corporation. Any dividends and profits paid to shareholders will be taxed on the personal level. While this may sound like an overall bad deal, the fact is that it can alleviate a huge amount of tax burden from the main owners of the INC.
You get more write-offs during tax season. Almost all operating costs are written off INCs before taxes are calculated.
You can add by-laws to your corporation. This can cut the amount of expenses that you’ll need to cover.
Corporations also can be publicly traded. If you want to end up on the DOW or NASDAQ, you will need an INC.
Generally speaking, INC’s are best for large companies. However, it’s best to talk to a specialist about this. The bottom line is that you have options when it comes to deciding on your company structure. As long as you’re smart about it, you can save big on tax time.