Naperville Business Lawyer Discusses LLCs and Corporations

LLCs, Naperville business formation attorneyIf you are thinking about starting your own business, one of the first steps you must take is figuring out which type of company your business will be. Both LLCs and corporations are viable options, and both have benefits and drawbacks.

In my practice as a business law attorney, I have helped many business owners understand the key differences between these two types of business structures, including ownership, taxes, and management. Choosing the right entity can be important in establishing long-term stability and sustainability.

Limited Liability Companies

LLC is a commonly-used abbreviation for a “limited liability company.” It is a legal entity that can hold real estate or other appreciating assets. An LLC is formed by an individual or a group of people who are the owners of the company. The owners are referred to as members, and they file Articles of Organization and develop up with an Operating Agreement. Each member owns a certain percentage of the company. An ownership stake in an LLC is typically more difficult to transfer to a new owner than shares of a corporation, but an LLC’s operating agreement will usually specify how ownership interests can be transferred.

LLC Taxes and Management

LLCs have a very flexible tax structure compared to corporations. An LLC with a single owner is taxed in the same way as a sole proprietorship, and an LLC with multiple members is taxed as if it is a partnership, but LLCs can also be taxed like an S-corporation or a C-corporation, if the owners choose. This is a feature that is unique to LLCs.

Because LLCs are a relatively newer business concept, they offer flexibility in the way a business is managed. An LLC can be managed by its owners or by a group of designated managers. If the LLC is managed by its members, the owners are usually heavily involved in most aspects of the business. If the company is managed by a group of managers, the members are usually just investors who are not very involved in the business.

Corporations

A corporation is a separate business entity for which profits and losses are typically taxable to the corporation, not the owners or shareholders. A corporation is formed by filing the proper corporate organization forms in the state(s) where the company does business. The company will designate shareholders, each with a certain number of shares, which gives them an ownership stake in the company. A corporation should also have a Board of Directors that oversees the business. Usually, it is easy to transfer shares in a corporation, making it a good business option for companies who want outside investors or to offer public shares.

Corporate Taxes and Management

Corporations are taxed one of two ways: as S-corporations or as C-corporations. Corporations are automatically taxed as C-corporations, which means the company itself pays federal income tax on profits made by the corporation. Shareholders will pay taxes on dividends that they may receive. If a corporation has less than 100 shareholders, they can choose to be taxed as an S-corporation. This means that the company does not pay corporate income tax, but the profits pass through to the shareholders’ personal taxes, and they will pay income tax based on their share of the profits earned.

Corporations have fairly standard management structures, as well as a board of directors that sets policies and procedures and provides oversight for the business. Day-to-day affairs are usually managed by the company’s officers. A corporation’s bylaws will usually define the rights and responsibilities of a corporation’s officers, directors, and shareholders.

Contact a Naperville Business Formation Lawyer

If you are planning to start a business, you need to figure out which type of business is right for you. An experienced Naperville business law attorney can help you make the right decision for your company. Contact The Gierach Law Firm at 630-756-1160 to discuss your business formation options today. consultation.

 

Sources:

The Balance

Corporate Direct