If you’re setting up a business, choosing the right form for your legal entity is a key part of your long-term success. Setting up an LLC offers significant advantages for some business, while incorporating might be a better choice for others. Before choosing a corporate form, it’s important to consider the benefits and drawbacks of LLCs and corporations and how they impact your long-term goals.

A Guide to LLCs & Corporations

The Benefits of an LLC

Setting up an LLC creates a new legal entity separate from its owners, offering both tax advantages and some protection from lawsuits. LLCs are generally set up as pass-through entities, so all revenue is taxed as the personal income of its members. Members of an LLC also cannot be held personally responsible for most business debts or liability suits, making them a popular choice for small retail operations, consultants, online publishers, and a variety of other small businesses.

Drawbacks of Setting Up an LLC

LLCs are relatively simple to set up and require minimal annual paperwork. However, investors and lenders are hesitant to provide funding to these entities, as they may be concerned that the borrower won’t be able to pay back the loan. An LLC might not be the best choice if you’re planning on expanding in the future.

The Advantages of a Corporation

As a completely separate legal entity from its corporate officers, corporations provide even more protection against personal liability for debts and lawsuits. This makes them ideal for law firms, accounting offices, and companies that plan to seek investors or business loans. Like LLCs, a corporation can be set up as a pass-through entity, or pay corporate tax, with individual compensation taxed at personal income rates.

The Disadvantages of Corporations

Compared to setting up an LLC, establishing a corporation is much more time-consuming and complex. In addition to naming corporate officers, you will have to submit minutes of annual meetings, file additional paperwork, and pay more substantial fees. Income can also be subject to double fixation since both corporate and personal taxes have to come from the same revenue stream.

Whether you’re planning on setting up an LLC or incorporating your business, We The People of NY offers the legal document preparation services you need to navigate the complex process on your own. They’ve been serving Manhattan business owners for over 25 years and will assist in filing your documents. Visit their website for more on how they can help you set up your business or call (212) 633-2200 to make an appointment.