When setting up a new business, choosing a corporate form may not seem as important as deciding on a name, logo, and commercial location. However, the type of entity you choose can have a major impact on everything from your tax burden and renewal requirements to your personal liability exposure. Before launching your business, you may want to consult a startup attorney for help deciding between an LLC, LLP, or a corporation.

The Differences Between Common Corporate Forms

Limited Liability Companies (LLC)

An LLC combines the simplicity and tax advantages of a sole proprietorship with the personal liability protection of a corporation. LLCs can be run by one or more members, who may claim the business income on their personal tax returns. Generally, members of an LLC can’t be held legally responsible for business debts or named in lawsuits unless they committed fraud or another legally actionable offense.

Limited Liability Partnerships (LLP)

In many ways, LLPs are similar to LLCs, with only a few important distinctions. Most critically, any partner who actively participates in the day-to-day management of the business is subject to liability claims, up to the value of their initial investment. Some states require attorneys, accountants, and other professionals to form LLPs, making them legally liable for actions.

Corporations

Unlike LLCs and LLPs, corporations are required to pay corporate tax on their income, which is then distributed to shareholders, who must also pay personal income taxes on their earnings. Because they offer full liability protection to officers and can easily accommodate new shareholders, your startup attorney may recommend choosing a corporation if you intend to seek out investors in the future.
 

If you’re launching a new business in the Greensboro, NC, area, the startup attorneys at The Law Office of W. Randall Holcomb PLLC will help set up your venture for success. Their team will guide you through every step of the process, from choosing a corporate form to filing the paperwork and meeting your annual renewal obligations. Visit their website for more on their business formation services, follow their Twitter for additional legal tips, or call (336) 888-8760 to speak with a startup attorney today.