Boulder City Magazine® April 2007 Issue
by Rodney S. Woodbury, Esq.
Woodbury, Morris & Brown
Choice of Entity Considerations: Corporation vs. LLC
If you’re a business owner looking to limit your personal liability, how do you know which entity is right for you? While there are many entities to choose from these days, including various forms of limited-liability partnerships, in most cases the two entities of choice are still a corporation or a limited liability company (LLC).
Boulder City Magazine®
|For most small businesses, the relative flexibility and simplicity of an LLC makes it the logical choice. Compared to corporations, LLCs are generally subject to fewer formalities, such as record-keeping and meeting requirements. LLCs also allow for greater flexibility in the structure of management and in the method of distributing profits and losses to the owners.
In addition, LLCs are almost always the entity of choice for small businesses that intend to own property likely to appreciate in value over time, such as real estate. In part, that’s because regular corporations (also known as c-corporations) and their shareholders are both taxed on the increased value of property when it is sold or when the corporation is liquidated. In other words, regular corporations are subject to a double tax. By contrast, LLCs are only taxed once. That is, an LLC’s income tax liabilities are passed through to its members, so the LLC itself doesn’t pay any income taxes.
Although an LLC is often the better choice for the reasons stated above, that is not always the case. Other factors sometimes tip the scales in favor of a corporation. Such factors may include the number of investors in the business, whether the business intends to raise money from the public, professional restrictions that sometimes preclude doing business as an LLC, the extent to which the company desires to provide fringe benefits to its owners or incentives to its employees (such as insurance or stock options), and whether the company can qualify as an s-corporation and thereby potentially save payroll taxes.
Contact Rod Woodbury at www.wmb-law.net.
P.O. Box 61901
Boulder City, Nevada 89006
Phone (702) 294-1392 Fax (702) 294-1392
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