If you form a limited liability company (LLC) from your business, this is an excellent way to protect your personal assets from the liabilities of your company. Incorporation protects your own property, if a judgment is rendered against your business. In addition, forming an LLC gives you an advantage, since your business isn’t responsible for the taxation of its profits.
The owner of an LLC reports the profits and losses of the business on his personal tax return. This operates in a way that is similar to general partnerships or sole proprietorships. These are called “pass-through” taxes, and you will not have to file a corporate return if you own an LLC. Your share of the profits or losses is reported on your individual tax return.
No Residency Requirements
When you form an LLC, you do not have to live in the state in which it is formed. You don’t even need to be a permanent US resident or a US citizen. For this reason and others, businesses owned by immigrants are usually formed as LLCs.
LLCs give your company more credibility with prospective customers, suppliers, partners and lenders. The LLC is often favorably looked upon by other businesses.
LLCs have flexible management structure. Your LLC can establish any type of organizational structure upon which the owners agree. It can be managed by the owners, known as members, or by managers. This differs from corporations, which must have a set board of directors who will oversee all major business decisions for the company. They will also manage all the affairs on a day-to-day basis.
LLCs encounter fewer ongoing formalities and annual requirements imposed by states than corporations do. In addition, there are fewer restrictions on who can own an LLC, unlike the rules found with S Corporations.
You may also be considering how to incorporate a business as an S-Corp or C-Corp, if you plan to incorporate rather than pursue registration as an LLC.
What is an S-Corporation?
An S Corp has similarities to LLCs, because its federal tax status also allows pass-through of taxable income or losses to the investors or owners. Your company will not be double-taxed as it is with a C corporation. S Corp status offers you pass through taxation, limited liability protection, investment opportunities and the elimination of double taxation on business income. An S Corp can also continue to function even if the original owner dies.
What about a C-Corporation?
If you prefer to incorporate, as opposed to becoming a Delaware LLC or an LLC in your home state, the C-Corp is the most common type found in the US. When you form a C-Corp, you will create a separate structure that shields personal assets from any judgments against your company. C-Corp structure includes officers, shareholders and directors.
Source by Christine Layton