In Favor of LLC or Incorporation?
For most, the American dream is to own your own small business. What kind of business structure will you use? Unlike the old days of partnership vs. corporation question, today's litigious society has high regard for asset protection, it's LLC vs. incorporation.
LLC does not stand for Limited Liability Corporation, as many people think. It stands for Limited Liability Company. It's the old Ltd. in England or the GmbH in Germany reincarnated in the United States.
LLC was introduced in 1977 and has become more and more popular Why is the decision of forming an LLC vs incorporating today in favor of the LLC?
Asset Protection LLC vs Inc.
As far as the "corporate shield" is concerned, the asset protection of an LLC and a corporation are generally the same. The corporate shield serves as a protection to the shareholders, officers, and directors from the acts of the company.
In either instance the LLC versus incorporation asset protection shield, aka, corporate shield, should form a barrier between the company, its members and its managers.
Note that the language in the LLC vs. Inc. world is different. Here are a few of the term differences.
Corporate vs LLC Terminology
Corporate - LLC Shareholder - Member Officer/Director - Manager Stock- Membership Interest Dividend - Distribution Articles of Incorporation - Articles of Organization By Laws - Operating Agreement
In your effort to make the decision of incorporate vs. LLC, you need to know that the LLC offers a form of asset protection that the corporations doesn't. The LLC will protect the company (LLC) from your personal liabilities.
It is called a "charging order" protection. Charging orders are a carryover from the old English laws that tried to protect partners from the personal acts of one of the other partners.
Your lawyer and some of the other internet sites may never mention charging order protection. I've seen too many people lose their business through a divorce, bad personal real estate deficiency judgment, or other personal disaster.
This is important and should weigh heavily on your decision regarding incorporating versus LLC structure formation. After all, you're setting up your business entity structure for the asset protection.
Taxes LLC vs Inc.
In your Inc. vs. LLC decision, taxes are not a valid decision point. The question I'm often asked is the differences between LLC vs. S corporations. Many think the LLC is a pass through entity, just like an S corporation.
They're right and they're wrong. An LLC can be a pass through entity or NOT. It all depends upon how you want your LLC to be taxed. The LLC is set up and then you decide how it is taxed. All LLCs have the same legal structure. They are just taxed under different sections of the IRS Code, depending upon what you choose.
If you decide how to have your LLC taxed, the taxes should not have any influence on the choice of LLC vs. Incorporation.
You need to make sure you maintain your entity structure whichever side of the incorporated vs. LLC battle you decide or it won't protect you. You can change down the road if you discover you made the wrong decision. It is much easier to obtain all the facts up front and then make an informed decision.
The problems begin as you walk into the attorney's office and say, "Hi. Here I am Mr. Attorney. I need a corporation. Set me up." The attorney will incorporate you without any discussion. They want you in and out of their office.
It's a sure fact you won't get help in the training of the care and feeding or help with tax decisions of your entity from the attorney or web sites whether you chose the corporation or the LLC. (How do you want your LLC taxed? How will you make the most money?) Unfortunately, the bottom line is the lawyers and the web sties only get you half way there. They may file the state forms and maybe obtain an operating agreement or bylaws. These will not give you the protection you need when standing before the judge.
The courts can only protect you if you follow the laws.. You must know the laws to follow them. I am here to teach you how to protect yourself by following the law. .
An attorney is expensive and the internet is only interested in taking your money to pay the state filing fees. I am willing to help you understand these legal matters and teach you how to protect yourself.
Want to learn more about sub s corporation vs llc or trust vs llc? Learn money saving tips for your LLC at LLC Wizard.com
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