Here are some of the major differences between a Corporation and a Limited Liability Company (LLC):
Taxes: a C Corp (standard type of Corporation) is taxed as a separate taxable entity, and subject to double taxation. This means that the corporation itself pays taxes, and any dividends paid to the shareholders is treated as personal income and thus subject to additional taxation at the individual level. On the other hand, an LLC is a “pass-through” entity, not subject to double taxation. In an LLC, profit and losses of the business are passed-through onto the stockholders and taxes are paid at the individual level.
Formality: Corporations have many more requirements and formalities to follow. Comparatively, an LLC is easier to set up and has fewer procedures to adhere to.
Fundraising Opportunities: for various reasons,venture capitalists (VCs) are reluctant to enter into agreements with LLCs. VCs prefer to work with C-Corps, who have a more savvy tax setup, aren’t governed by partnership rules and allow for stock option plans and convertible notes.
Startups turn to us atwhen they are trying to decide which business entity to employ as this is often one of the earliest, important decisions that entrepreneurs are faced with. Choosing the right business entity in the beginning can save a ton of money and stress in the long run as I’ve witnessed too many startups run into problems from using do-it-yourself incorporation packages found online. There’s just nothing that beats a personal consultation with a professional. We offer free initial consultations at LawTrades so give us a visit!