To Be or Not To Be…A Corporation
To Be or Not To Be… A Corporation… Or an LLC… Or maybe a partnership?
The type of legal entity to set up is an important decision for new businesses. Most startups get advised to form an LLC because LLCs combine some of the advantages of corporations and partnerships while avoiding some of the disadvantages.
But the corporate tax rate keeps changing, leading some business owners to reconsider whether a corporation is the right legal entity for them.
However, 𝘁𝗮𝘅 𝘀𝘁𝗮𝘁𝘂𝘀 and 𝗹𝗲𝗴𝗮𝗹 𝗲𝗻𝘁𝗶𝘁𝘆 are not the same thing.
Does every new business need to be an LLC? It depends, but likely, the answer is yes. The LLC is still, by far, the most popular choice. That’s because it’s the most versatile of all the other options. It’s not as strict as corporations when it comes to observing formalities, it is more flexible than both corporations and partnerships in how the company must be managed, and it allows the owners to choose how it’s taxed (it can even elect to be taxed as a C Corporation or S Corporation).
It should be relatively rare for the best entity choice to be a corporation or a partnership. Still, before choosing a legal entity, it’s important to evaluate both tax and non-tax considerations.
The final decision should be made after understanding all the facts and the specific goals of the business.