I am undecided about which type of entity to form, an LLC or a Corporation. Could you tell me more about their differences?
Undecided in NY
Dear Undecided in NY,
There are many differences between an LLC and a Corporation. You should look into them carefully before making your decision. Here is some general information about them.
New York LLC:
An LLC stands for Limited Liability Company in which the investor cannot lose more than the money invested. It is not seen as a corporation; instead it is treated like a partnership. An LLC has more flexibility than a corporation in that it can be recognized as an S- corp, C- corp or a sole proprietor/partnership. Because of this, an LLC is ideal for businesses with a single owner. LLC’s were first formed in the 1970’s. Because they are relatively new, the laws for LLC’s are not consistent throughout all the states. Check with your individual state to see what regulations are necessary for a LLC. All LLC’s are initially taxed as a single taxation also known as a “pass-through” taxation. The members of an LLC are its’ owners. Unlike a corporation that has corporate structure; LLCs are capable of appointing any of their members as its acting manager. LLCs follow an operating agreement to outline the business functions. In New York State, a publication requirement is necessary to complete the filing process of a LLC.
New York Corporation:
A corporation is a legal entity that allows lawful business transactions to be made. The corporation is distinctly separate from the owners’ personal assets and the owners personal belongings cannot be seized due to the failure of the corporation. A corporation is taxed twice- once on the business net profits, and once on the dividends of the shareholders. A corporation is filed as a C corp and can be changed to an S-corp. An S-corp allows for no corporate tax, so nets and losses can be claimed on your personal tax return. The shareholders are the owners of the business. Minutes and bylaws lay out the corporate structure for the business. A board of directors is necessary to manage the inner functions of the business. A corporation remains in perpetual existence until dissolution is filed with the Department of State. Each corporation filed required a corporate indicator on the end of the business name, i.e. ( corp., corporation, ltd, inc, incorporated).
We recommend you discuss with an attorney, accountant or tax professional to help you decide which type of entity is best suited for you. Best of luck with your business!