• October 2018
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What is the differences between a Corporation, an LLC and a non-profit?

Good and important question here. Here is a quick breakdown:

Corporation

It is an entity distinct from its owners, 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. Some other qualities include a corp’s lifespan being perpetual in existence, personal liability normally limited to investment, and freely & fully transferable ownership interests. If you plan on seeking investments from venture capitalists (VCs) or plan on having an IPO then you should likely form your company as a corporation (a “c-corp” to be specific). A major drawback with corporations are the extensive formalities you’ll have to follow.

Limited liability company (LLC)

As a “pass-through” entity, an LLC is not subject to double taxation as profit and losses of the business are passed-through onto the stockholders and taxes are paid at the individual level. Not an ideal entity for those seeking VC. A great entity for business owners looking for personal liability protection, without the annoying formalities (like a corporation).

Non-profit

A loose term that includes all organizations that are known variously as charities, nonprofits, non-governmental organizations (NGOs), and private voluntary organizations (PVOs). Qualifying to become a 501(c)(3) organization certainly has it’s advantages. First, contributions to 501(c)(3) nonprofits are deductible on the donor’s income tax returns. Also, 501(c)(3) organizations can receive grants from other nonprofits and government agencies. Importantly, directors of 501(c)(3) nonprofits are provided personal liability protection.

Hope that clears things up for you. Please note that these are generalities and that an attorney is the right person to advise you on which entity is best for your company. If you’re looking for a quick and cost-effective way to set up an LLC, corporation or 501(c)(3) non-profit, feel free to check out LawTrades.

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