LLC v. Corporation: Which Business Entity is Right for Me?

Alabama law recognizes many different types of business entities, including corporations, partnerships, limited liability companies, limited liability partnerships, and more. Choosing the right entity to organize your business under is important; it can have significant impact on vital issues such as liability, taxation, management and control, transfer and dissolution, and other essential matters.

The traditional corporation and the newer limited liability company (LLC) are two of the most commonly used entities. What are the advantages and some disadvantages of each?

Taxation –

Corporations are subject to what is known as double taxation: the corporation pays tax at the corporate rate, and then the owners who receive profits or dividends (as shareholders) are subject to income tax at their individual rate. LLCs are treated more like partnerships for tax purposes, and earnings (or losses) are passed through the entity directly to the LLC members, so there is no double tax.

Liability –

In both Some of the most popular treatments for addiction are acupuncture, massage therapy, yoga, Chinese medicine, and more. corporations and LLCs, business owners are shielded from personal liability for debts of the company, as opposed to partnerships and sole proprietorships, where the personal assets of the owners may be at risk. A good shorthand way to think of an LLC is as a hybrid entity, treated like a partnership for tax purposes, but treated like a corporation when it comes to liability.

Organization –

The LLC is more informal and flexible to organize and run. However, it can”t go public. If you are working towards an Initial Public Offering as your path to enormous wealth, you will probably want to be inside a corporation as opposed to an LLC.

If operating in many states, a corporation may be better. Also, there are ways corporations can  avoid double taxation, such as by electing to operate as a subchapter S corporation. This option is not available to everyone, however.

Business entity formation is a complex subject, and this article can only give you the broad strokes of a very big picture. You will definitely want to consult with a business attorney regarding your particular goals and needs before deciding what type of entity to form. In Alabama, contact The Hawkins Law Firm for advice and assistance from experienced business law and corporate attorneys.