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LLC versus C and S Corporation: Which One is Better?
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You and your colleagues decided one day to form an engineering consultation firm. After you have decided on the financial matters, you are now planning to adopt a business structure that will be the identity of your company. A corporation structure may suit your business needs. However, one of your friends suggested that you adopt an LLC business structure instead of a corporate structure.
An “LLC” at the end of your business name instead of the traditional “Co.” or “Inc.”? It will be quite unusual for you if you are unfamiliar with Limited Liability Company or also known as LLC. It is so far the newest category of legal entity that exists in the United States. For many American entrepreneurs, LLC is the “marriage” of the tax advantages of a partnership and the limited liability feature of a corporation. In addition, all states are accepting LLC application for both American and non-U.S. citizens who want to have a new business option to explore with.
The first LLC act was established in the state of Wyoming in 1977, followed by the legislation of all so states of the country allowing the formation of this new legal entity. LLC already exists for almost 29 years, and yet it already attracted thousands of investors to form an LLC type of structure. Why is it that investors prefer LLC than the good old C or even S corporation? This article will find out the reasons for such question.
One of the reasons which brought LLC to its greatest heights both to local and foreign entrepreneurs is the satisfaction of demands of accountants and lawyers. The former opts the limited partnership simply because they are avoiding the double taxation if their client will form a corporation. Double taxation is taxing incomes both on corporate and individual shareholder level. The latter opts the greater asset protection provided by the limited liability feature of the corporation. With the introduction of LLC, both demands are satisfied.
Another reason is that LLC offers some advantages over an S or even a C corporation. These advantages are as follows:
1. LLC has no limitation on whoever can be a member of its entity. In an S Corporation, only U.S citizens or residents, estates, and other S corporations can only be its members. LLC is not limited on such membership. In other words, you can have other corporation or legal entity as member of an LLC regardless of mentioned limitations.
2. LLC has more options with regards to allocating rights, profits, and assets to its owners than the S Corporation. The latter can only have a single class of stock, which means each share has the same rights as every other share in the corporation. It is quite disadvantageous especially if other shares are generating much more profit than the other shares. In LLC, the rights, profits, and assets can be allocated according to the performance of each share inside the company.
3. LLC is not required to execute corporate formalities such as board of directors and formal corporate meetings and records in an S or C Corporation. However, it is still required to maintain pertinent records and bookkeeping.
Lastly, LLC can be a powerful tool in protecting both your personal and corporate asset against financial predators. You can maximize such protection by keeping different real estate on separate LLC. In other words, if these financial predators are coming after your one LLC, only a single property will be affected.
These are just some of the reason why LLC is most preferred than S or even C Corporation. It is now your choice of what entity structure you want to apply to your business.
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