Advantages of Incorporating or Forming an LLC

Incorporating or Forming an LLC is a great first step in starting your business. Below we’ll discuss some of the advantages of the corporation and the LLC.

The Corporation — Promote Yourself to CEO

The corporation is the most enduring form of business entity. Originally created hundreds of years ago as a way to protect shareholders in risky overseas ventures, corporations today are now formed by filing the necessary documents and fees with the Secretary of State. This creates a distinct legal entity that is separate from the shareholders.

It’s akin to creating a new “person” with its own name and social security number (called the FEIN or Federal Tax ID Number; which we can obtain for you).

Many people choose to incorporate to:

1. Reduce their personal liability — a corporation properly formed and organized can shield the owners (shareholders) from liability for business debt or lawsuits against the company thus protecting their personal assets such as homes, cars, savings, etc.
2. Add Credibility to Their Business — a corporation communicates permanence, prestige and credibility and also can make it easier to establish credit.
3. Reduce Taxes — a corporation is able to deduct many expenses that a sole-proprietorship or partnership cannot, including healthcare, entertainment and travel expenses. Also, pension or retirement plans can be grown more effectively in a corporate structure.
4. To raise money easier via the sale of stock and also transfer ownership easily via the transfer or sale of stock.
5. Build Business Credit — a corporation, being a separate entity, can establish a new and separate credit profile that is distinct from your personal credit profile.

This means that although you may have poor personal credit, you can structure your new business in a manner that allows you to build a pristine credit profile for your company, allowing you to receive loans, credit cards, lines of credit, etc. that you would not be able to obtain as an individual (and often at better interest rates).

These are just some of the many reasons why the corporation is the entity of choice for not only the largest companies on the planet, but some of the most successful small businesses in the world.

Corporations are also easily modified as your company grows or changes. Once the corporation is formed, you can “amend” the Articles of Incorporation to change the name, the directors, the amount of shares authorized, etc. Many corporations like Dell and EarthLink started out as very simple corporations which were modified as the company grew and became more complex.

Although it sounds like a complex decision, a corporation can also be dissolved almost as easily as it is created (assuming there is no outstanding debt) by filing dissolution papers with the State, returning any money to the shareholders and notifying the IRS.

The Limited Liability Company (LLC) — The User-Friendly Legal Entity

The LLC is a relatively new form of business entity (originally created in Wyoming in the 1970’s) that is now recognized in all 50 States and D. C. It provides many of the benefits of a corporation (limited liability, separate entity, etc.), without the extra work of issuing/tracking stock, holding formal board and shareholder meetings and writing numerous resolutions and minutes.

Many people choose to form an LLC to:

1. Reduce their personal liability — like a corporation, an LLC is a separate entity that can help shield the owners (members) from business debt and lawsuits.
2. Add credibility — the addition of the “LLC” ending on a business name communicates permanence and credibility; it also indicates that the company is officially registered at the State level whereas a sole-proprietorship or partnership is usually only registered at the city or county level.
3. Prevent disputes between partners — an LLC whose members have adopted an Operating Agreement (our LLC Formation Service includes a personalized Operating Agreement) have agreed in writing to resolve disputes, have procedures for adding/removing a member plus methods for resolving other internal company matters like ownership, distribution of profits, etc.
4. Easy management — the compliance requirements for an LLC are much less formal when compared to a corporation or an “S-corporation”. The LLC, though taxed in virtually the same manner as an “S-corporation” (income/loss is added to the member(s) personal tax returns), has fewer restrictions like no US residency requirements and no limit on the number of members.
5. Protect their 1-Person company — many 1-person businesses will be pleased to know that all 50 States now recognize the 1-Person LLC. This is beneficial because a 1-Person LLC is taxed the same as a sole-proprietorship but still retains the liability protection and permanence of a separate entity along with the benefits we’ve listed above. The 1-Person LLC is a great alternative to the sole-proprietorship and can also grow to add additional members in the future.
6. Build Business Credit — an LLC, being a separate entity, can establish a new and separate credit profile that is distinct from your personal credit profile.

This means that although you may have poor personal credit, you can structure your new business in a manner that allows you to build a pristine credit profile for your company, allowing you to receive loans, credit cards, lines of credit, etc. that you would not be able to obtain as an individual (and often at better interest rates).

Because of their easy management and taxation structure, LLC’s have quickly surpassed Corporations as the business entity of choice for many small business startups.