Is an LLC Or Corporation the Better Choice?

You are ready to get serious about a business idea. You've read somewhere that protecting yourself is a critical move. You know this means you need to form some type of business entity. The question you face is whether an LLC or corporation is the right choice.

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         The web is a wonderful medium. It has opened up communication across the world to unheard of or even unimagined levels. The shear amount of information available at a click is simply astounding. This, however, has also resulted in a problem. There is often too much information and much of it is contradictory. This is exactly the situation when it comes to choosing between an LLC or corporation for your business.

         Let's cut right to the chase. Which entity is better for you? Are the sites touting the LLC right of are the sites touting the Corp or S-Corp? The answer is there is no blanket correct answer. Sorry, but we are dealing with the real world here. The corporation is the best choice for some businesses and clearly so. In other situations, the LLC is clearly the best choice. The devil is in the details of each situation, but let's look at some generalities.

         The LLC is often touted as the "best" business choice because it is simple to run. You don't have to have annual meetings and meet the formalities of the entity. This sounds nice and makes a great marketing pitch, but it completely ignores most of the issues that make the LLC a good or bad choice for a particular business. Taxes are huge issue for instance. Some large states like California actually charge LLCs with a gross revenue tax. Yes, GROSS! That can be a huge deterrent for most small businesses. What if the business goes big and you want to go public? You can't take an LLC public!

         Well, this must mean the corporate entity is the best option in most cases right? No, not really. A corporate entity gets bogged down in many ways as well. One is the lack of flexibility. If there are multiple shareholders, the minority shareholders can cause a host of problems and everyone can start suing each other over control of the entity. The money flow is also going to be double taxed. On the other hand, you have to be a corporation in most situations to go public if that is your goal.

         Given all of this, how exactly are you supposed to know which entity is right for your business? I have bad news. You should hire an attorney. You can retain most of them for an hour and ask all the questions you like to make sure you get the correct answer for your particular situation. If you just randomly pick an entity, you could end up really regretting it down the road.

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