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Should you form a corporation or an LLC?

by | May 11, 2022 | Business Formation

Forming your own business in New York requires you to make many decisions. You need to form an entity that best suits your own needs. You then need to think about meeting the needs of your clients. Corporation and LLC arrangements both have their share of pros and cons. Here are some details for you to consider.

The pros and cons of a corporate structure

The process of entity formation is one that will give you several choices. There are two major corporation types that you can choose from. These are known as C-corporations and S-corporations.

Most new business owners will choose to start a C-corporation because of its appeal to investors as well as its limited liability protection. The major drawback is the potential for double taxation. A C-corp can be taxed first at the entity level and then again at the stockholder level,

The greatest appeal of an S-corporation is pass-through taxation. All of the income and losses pass through to the stockholders. The biggest con is the long list of requirements you must fulfill to maintain your S-corp status.

The pros and cons of an LLC structure

Another popular type of entity formation is known as an LLC. A limited liability corporation enjoys the advantage of pass-through taxation. It also has more flexibility when it comes to finalizing its governing structure. An LLC is not ideal for venture capital but can be perfect for the needs of corporate investors.

However, an LLC is subject to several potential drawbacks. As the owner of an LLC, you will not be able to issue an IPO. You may also have difficulty issuing equity in a broad manner. Understanding your options can be helpful in choosing a business structure.