So, Which One Is Better? The LLC Or The Corporation?
Florida is awash in limited liability companies and corporations. Businesses are smart to form them because both create a shield between the owners and operators, on the one hand, and the outside world, on the other.
But which one is better for you?
Here comes the unfortunate answer you dreaded: it depends. It depends on a number of things, some of which are personal to the people who first create the entity, but a lot really has to do with privacy, taxation and growth.
The LLC - or limited liability company – is the more private of the two business forms. There is less public reporting and disclosure of information. Less information made known means more privacy for the llc and its insiders.
There are also fewer formalities. Corporations, for instance, are governed by a different, stricter, and much older grouping of statutes, which have a number of requirements for things like meetings (including annual meetings for the election of directors, who appoint officers). Not only does this mean more meetings, but more documentation and record-keeping. It also means regularly (and sometimes irregularly) scheduled elections of the people who run the business, which also have to be documented.
Taxation is also a place where these two business forms differ in important ways. LLCs are pass-through entities (meaning the company’s income is passed through to the owners) and, effectively, results in the money being taxed only once. In a corporation, however, revenue is double-taxed – when it is earned and again when it is distributed.
But, if growth through re-investment is your strategy, then the corporation has certain advantages. First, corporations have an easier time attracting investors who want to take equity as part of their investment. Corporations are well-suited to allowing for issuance of stock, the creation of stock options, and the creation more than one type of stock as means of drawing in investors or even rewarding employees. Even better, if these transactions are appropriately structured, they can be tax deductible.
The number of differences between these two business forms are large and this is just a sampling of a few and at the most basic level. What form is right for you is individual and subject to the circumstances, goals, and means of the founders, owners, and operators. In other words, every situation is different and what may be appropriate for one business may be ill-advised or even disastrous for another.
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