Forming LLCs Versus Corporations

One of the first decisions every business owner needs to make is what entity to file their business as, and that choice is typically between LLCs vs. Corporations. Really the decision comes down to what fits the needs of the business owner and the business, but there is still discussion on which entity is best. Here at MyCorp, we gathered together a panel of professionals to get their expert advice on LLCs vs. Corporations and which is the best to form for your business. Which side are you on?

1. “Generally speaking, corporate status is preferable. Banks typically don’t view LLCs as favorably during the loan application process and corporations don’t pay taxes on fringe benefits. These include group-term life insurance, medical reimbursement plans, medical insurance premiums, and more.”

– John Boyd, Principal, The Boyd Company, Inc.

2. “Almost all small businesses should start out as an LLC rather than an S- or C-corporation. Why? Cost, flexibility, and ease of use. As far as finances go, most LLCs you could set up online yourself through your state corporation commission. Once the LLC is set up, it’s important to have a lawyer to assist as a registered agent to fulfill the duties of corporate minutes, meetings, and filings. For flexibility, a lot of the rules that apply to corporations don’t to LLCs, yet you get a lot of the same protections from liability. And when it comes to ease of use, most LLCs are written with the ability to be very open to conducting business. As business ideas or models change, it is easy for the LLC to follow suit.”

– Jonathan Kennedy, Founder/Owner, Endeavor Capital LLC

3. “I own both a S-Corporation (since 2009) and LLC (since 2001). Both are established in New York and from a tax perspective, both entities are practically the same. The net income or loss from both entities flows directly to my 1040 and that’s where I realize the gain or loss. In addition I have a third entity, a Delaware C-Corp (since 2005). Of the three entities, the C-Corp is by far the most expensive from both a tax and reporting perspective.”

– Eric Herman, President, DoCorporate.com

4. “Everything is dependent on an entrepreneur/small business owner’s unique circumstances and the state’s corporate laws. As a restaurant and hospitality lawyer, I find my clients tend to choose an LLC. A corporation has formal requirements, such as an Annual Meeting, that most small businesses will find unnecessary for business purposes. Likewise, a C-Corporation, subjects the corporation to federal corporate income tax and then personal income tax on the disbursements to the shareholders, i.e. double-taxation. An S-Corporation passes the corporation’s income to the shareholder(s), making them only responsible for one wave of taxes, but an S-Corp still has the formal requirements. Finally, the shareholders are not liable for the acts of the corporation. An LLC is an entity that was created, in part, to address the formalities of a corporation. An LLC can be taxed as an S-Corporation. The fees for an LLC may be less than for a corporation. And, most states (to my knowledge) apply the same general rule that LLC members (i.e. the owners) are not liable for the acts of the company.”

– Alan A. Fowler, Esq., Restaurant and Hospitality Lawyer, Alan Fowler Law

5. “I think LLCs are good in the beginning for small business to allow greater flexibility to the individual. BUT when the LLC turns nicely profitable it becomes a challenge to invest in growth rather than distribute earnings.”

– Brad Barrett, Founder and President, GrillGrate LLC

6. “A corporation but elect to become an S Corp. You can have all of the benefits of being both the corp and LLC. Capital is easy to raise through selling stock. The cost of formation is also cheap and there’s no publication. By becoming an S Corp, you don’t have to worry about double taxation.”

– Adam Kalish Esq., Business Lawyer, Law Firm of Adam Kalish

7. “The short answer is “it depends.” However, I have found that an LLC will often provide more flexibility in terms of division of rights and responsibilities from the default rules in many business entity statutes. There is more flexibility in terms of pass-through tax treatment with LLCs vs. corporations, even with a Subchapter S election.”

– Doug Berman, Corporate Attorney, Law Office of Douglas M. Berman

8. “There is no one right answer for LLCs vs. corporations. Each person’s business is unique because of the founder, location, type of business/industry, number and type of investors, projected growth and plan for the business, taxes, and the founder’s willingness to face risk. Both corporate entity and an LLC have their pros and cons. One size does not fit all!”

– Paula Schaefer, Attorney at Law, Paula Schaefer Law

9. “I elected to form an S-corp because I anticipated the possibility of someday taking venture capital funding, which generally entails a C-corp structure. This switch is a much easier one-step process with an S-corp – you’re basically just un-checking a box on your IRS forms – versus the added expense ant time of dissolving the LLC and re-forming the entity later. Lost time kills start-ups. Although I probably do a bit more paperwork than I would have with an LLC annually, the added flexibility in that one area is worth it to me.”

– Robb Fitzsimmons, Proximate PM, proximate.com

10. “Unless the type of business an owner forms requires them to be set up as a corporation, I usually advise my clients to begin as LLCs vs. corporations. Formation fees are less expensive for an LLC. It also has the same protections as a corporation does. I advise them that they can always change to a corporation later as they grow. Each state has its own laws for how a business should be registered. Depending on the type of business, it may be required to be formed as a corporation. I think it’s best to start as an LLC unless the business is required to be formed as a corporation. An LLC can still be taxed as a corporation if the business owner desires to do so. They would need to compare the tax rates of each to see what is most beneficial for them.”

– JeFreda R. Brown, CEO, Brown Accounting Solutions, LLC

11. “Personally, I elected to form each of my businesses as LLCs rather than Corporations because the initial set up costs and the ongoing costs were much more affordable. Additionally, compliance is easier for me as a small business and I still have the flexibility of electing to be treated as either a corporation or sole proprietor/partnership for tax purposes. (I actually used MyCorporation myself to form 3 different LLCs and I
was very pleased with the level of service!)”

– Joel Ohman, Certified Financial Planner™ and Founder, Car Insurance Comparison

12. “I believe that the answer can only be revealed after learning more about the business being started and the goals of the founders. If the founders know that they are going to take on institutional investors, they should form a corporation for tax reasons. Then, when talking about a corporation, you must determine with an S or a C corporation is the right fit. For some founders, an LLC will make more sense if they want to be more creative about how they distribute equity and profits.”

– Evan Husney, Of Counsel, Foster Graham Milstein & Calisher, LLP

13. “An LLC seems to work the best for most of our clients based on their
general needs.”

– Chris Good, Partner, Fowler & Good LLP

14. “LLCs provide the ultimate in tax flexibility. They allow business owners to start small, and be taxed as a sole proprietorship. This keeps tax compliance costs low. As they grow, it will likely be optimal for the taxpayer to be an S-Corporation. LLCs allow them to modify their tax structure without having to change EINs or legal structure. I refer to LLCs as ‘chameleon entities,’ because they are able to take on the characteristics of any entity they choose.”

– Aaron Blau, EA, CPA, and Fellow of the National Tax Practice Institute, The Blau Company, Ltd.

15. “The form of organization really depends on each entrepreneur/small business owner’s situation. For example, if an entrepreneur is looking to seek investors who want the freedom to sell their ownership interests to realize a return at their option, the best choice would be a corporation. However, if the entrepreneur/small business owner seeks to restrict the selling of ownership, an LLC is the better option.”

– Senen Garcia, Esq., SG Law Group

Made your choice between a corporation or LLC and ready to start your business? Leave a comment below, or give us a call at 1-877-692-6772!