Decide which business type is right for you: LLC or C-Corporation
LLC (Limited Liability Company) is the most common business type. A LLC will protect your personal assets from the business debts as well as lawsuits. LLC has “pass-through” taxation which means your earnings just pass through to your income taxes on personal tax return.
C-Corporation is another business type for those who want to have “shares” for their company and who expect to have investors invest in their business. For investors, corporations are prefered since they can hold shares passively without worrying about tax consequences until the shares are sold later.
Can Corporations be bad? The chief drawback is that Corporations are “double taxed.” The Corporation is taxed, when it earns income. Later, when the Corporearns issue dividend, the shareholders are taxed on the amount they receive. Hence, Corporation income is “taxed twice.
Comparison Table
| C-Corporation | Limitied Liability Company (LLC) | |
| Personal Liability | Shareholders are not typically held liable | Members are not typically held liable |
| Foreign Owners | Allowed | Allowed |
| Type of Ownership | Stock based. Different classes of stocks can be issued | Membership based. |
| No of Owners | Unlimited as stock based | Unlimited number of members allowed |
| Transferability of Ownership | Shares are easily transferred | Depends on restrictions outlined in the Operating Agreement / State Laws |
| Can be owned by another Company/business | Yes | Yes |
| Raising Capital / Investment | Shares of stock are sold to raise capital (Securities Law applicable) | May sell interests, but subject to Operating Agreement (Securities Law may also apply) |
| Management Style | Less flexibility in management style | More flexibility in management style |
| Managed by | Directors and Officers | Members or designated managers |
| Ease of Operation | Must conduct Annual meetings, Board of Directors Meetings, Corporate minutes and Stockholders meetings | Generally easy but some states may have additional requirements. |
| Taxation | Double Taxation : Taxed at Corporate Rate for company income and again taxed at individual level when distributed to shareholders. | No Tax at entity level. Income passes through to members and is taxed at individual level. However, if salary paid to members then it would be subject to self employment tax |
| Tax Forms | IRS Form 1120 |
One Member : Sole proprietor - IRS Form 1040 Schedule C Partnership : IRS Form 1065 & Members get K-1 |
| Reports & Administrative Requirements | Election of Board of Directors / Officers, Annual Meeting and Annual Report filing requirements | Relatively few requirements |
To incorporate your LLC or C-Corporation, there are multiple steps involved. We at Braj Aggarwal can help incorporating your company in USA as easy and simple as possible without any complicated paperwork or hidden costs. Book a FREE MEETING with us by filling the form below or call us on (+1) 718-426-4661 and email us on baggarwal@aggarwalcpa.com and we could guide as to how your business can be incorporated.
