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Why LLC or Corporation?

Why Incorporate

Why Should You Form an LLC Or Corporation for Your Business?

In the age of freelancing and side-hustles, it’s easy to think you can start a business free and clear without incorporating. But if you want to legitimize your business and protect yourself from lawsuits, incorporating is the best decision you could ever make.

As a freelancer/solopreneur there is no separation between your business and personal assets. That means if you’re ever targeted by a lawsuit (and lawyers love targeting small business owners), you risk losing EVERYTHING—your savings, home, retirement and other personal property.

By forming an LLC or Corporation, you protect your personal assets and safeguard yourself from being personally liable for debts incurred.

As if that’s not enough, incorporation also comes with a ton of perks including tax savings, privacy, brand protection and access to business funding.

The Benefits of Incorporation

  • LIABILITY PROTECTION - In our litigious society, incorporating to protect yourself just makes sense. No other structure gives you and your business the liability protection offered by incorporation. When you incorporate, your personal assets are not at risk for the debts and liability of your business.
  • ASSET PROTECTION - It doesn't take a catastrophic lawsuit to wipe out everything you own. Could you satisfy all your business obligations without tapping into personal reserves or losing personal assets? Incorporating takes this burden off your shoulders knowing that your personal assets cannot be targeted in the event of a business lawsuit.
  • TAX SAVINGS - There are a ton of tax benefits that come with incorporation. LLCs and corporations are entitled by law to many tax deductions not afforded to individuals. Additionally, the self-employment tax savings alone can amount to thousands of dollars saved every year.

LLC vs. Incorporation: Which is Best for My Small Business?

What is a Corporation?

Like an LLC, a corporation is a legal entity created separately from those who own and operate it. A corporation's debts and taxes are separate from its owners, thereby offering the greatest personal liability protection of all business structures. The two most common types of corporations are S and C corporations.

C Corporations

On average, C corporations pay less in tax than an individual. It’s also the only tax table where the tax rate drops when you start making millions. That's why every Fortune 500 company is a C corporation.

Additionally, there are no limitations on shareholders. They can live anywhere in the world and be of any entity. Even better, C corps boast fewer criteria than S corps giving you the options you need to meet your objectives.

The main disadvantage of this structure is that it pays tax on its earnings and the shareholders’ dividends. This means a double tax on your corporation’s earnings. This may be a deal breaker for some people.

PROS

  • Unlimited Number of Shareholders
  • Fewer Criteria
  • Lower Maximum Tax Rate
  • More Options for Raising Capital

CONS

  • Corporation’s Earning Taxed Twice

S Corporations

From tax advantages to flexibility, forming an S corp has many benefits. One such benefit is pass-through taxation. This allows owners to avoid the double tax of C corps making it a popular choice for small business owners.

Both S and C corps allow for limited liability of the owners, officers, and directors but while C corps have no limitations on shareholders, S corps cap the number of shareholders at 75.

There are also more qualifications your company must meet to elect S corp status. Click HERE to see all the requirements.

PROS

  • Limited liability of the owners
  • Typically runs on a calendar year
  • Full disclosure of corporate owners
  • Pass-through taxation
  • Profits taxed even if not distribute

CONS

  • Limited number of shareholders
  • Shareholder restrictions
  • Stricter criteria

LLCs

The most popular entity structure available, an LLC blends the aspects of corporations, partnerships and sole proprietorships into a simple and flexible business entity. LLCs protect the owners and operators from personal liability similar to a corporation, and they possess the "pass-through" tax benefits of a partnership.

Additionally, LLCs offer the same personal liability protection as corporations, but do not require the typical formalities that are required when managing a corporation.

PROS

  • Asset Protection
  • Tax Advantages
  • Ability to Raise Capital
  • Easy to Run

CONS

  • Only Available to Privately Owned Companies
  • Can Lose Pass-Through Tax Treatment
  • Possible State Imposed Income Tax

Still Can’t Decide?

Still not sure which business structure is best for your small business?” No worries! Give the business specialists here at Inc Authority a call. They’ll walk you through your options, answer all your questions and help you choose the best structure for your unique startup.

Call us today at (877) 462-6366 to get started!






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