By Audrey Stanton
An important decision for any business owner is how to legally classify their company. Whether they opt for a corporation or an LLC, a partnership or a nonprofit, this choice impacts the ownership, liability, and taxation of their business.
While there are many structures available to business owners, at EGBI we commonly work with clients who are deciding between a C Corporation and a Limited Liability Company.
C Corporation
A C Corporation, or C Corp, is one of the most common types of corporations. Companies that are incorporated (commonly shortened to “inc.”) are typically more complicated and expensive to set up and maintain, but offer benefits for businesses that need to raise money or plan to be sold.
- Ownership: One or more people
- Liability: Owners are not personally liable for business debts
- Taxation: The C Corp pays taxes on its profits according to national and federal corporate tax rates
Limited Liability Company
A Limited Liability Company (LLC) is a legal entity that protects owners from personal liability for business debts. While LLCs don’t offer the same benefits for raising funds as a corporation, theytypically require less recordkeeping and paperwork.
- Ownership: One or more people
- Liability: Owners are not personally liable for business debts
- Taxation: Owners have flexibility in choosing between paying self-employment tax or corporate tax
Each structure offers its own advantages and disadvantages, but ultimately the “right” choice depends on each individual business, and is best decided with the help of a legal professional.
If you’d like to consult with an attorney and learn which business structure is best for your company, please join us for one of our upcoming Legal Clinics where you will have the opportunity to speak with an attorney privately for 30 minutes at no charge. Click here to learn more and sign up for your free session.
Source: U.S. Small Business Administration, “Choose a business structure”
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