Running a business has its benefits and risks. Choosing the right structure for your business is important in maximizing the benefits and minimizing the risks. If you are running a business that is almost a hobby and do not involve too many risks, you may choose to function as sole proprietorship or a partnership if two or more persons are involved. Both forms of businesses do not involve too many formalities to set up. Likewise, the tax return filing is also uncomplicated as the return of profit or loss from business can be filed along with the individuals or partners personal tax filings.
Limited Liability Companies or llcs are the most popular form of business entity for small businesses. Llc definition is in itself obvious regarding the liability of a member or owner for the business’s debts or risks. Llc provides protection to the members and limits their personal liability in businesses where risks are considerable. The main advantage of an Llc is that it has flexibility in formulating business and management policies. Forming an Llc and running it is expensive and strenuous than forming and running a sole proprietorship or partnership business. Forms have to be filed and fees paid for registration and other formalities and records of all business decisions and transactions have to be maintained.
Forming a corporation is necessary when the business contemplated is considerable in volume and the associated business risks are significant. Usually, large and medium sized businesses incorporate themselves to deal with complicated business issues and the statutes governing large businesses. Forming a corporation is costly and the formalities and procedures involved in a running corporation are cumbersome when compared to that of other business entities. Corporations are taxed on their profits directly and can retain the profits earned without distributing it among its shareholders which may help in saving some tax liability. How to incorporate yourself in the United States depend on the rules and regulations of the individual state where you plan to incorporate.
The differences in an Llc vs corporation are that, LLC are generally formed for small business operations as the structure offers flexibility in decision making and management. Whereas corporations are managed by a board or group of decision makers and involves formal procedures in making decisions and implementing policies. Owners or members of LLC’s are usually not free to divest or transfer their interest in the business. Stocks or shares in a corporation are easily transferable if not otherwise stipulated in the Articles.
