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Should you form a corporation or an LLC?

On Behalf of | May 29, 2022 | Business Formation |

Forming a business in New York can present its share of dilemmas. One of these is making a choice of what kind of business to form. The most common types are an LLC or a corporation. Both come with a number of intrinsic advantages that make them well recommended. But both also come with a number of crucial cons.

The pros and cons of a corporation

The issue of business formation is one that you need to resolve at the very beginning. Different types of corporations offer varying advantages.

A major plus that they all offer is the ability to be held financially liable at the corporate, rather than personal, level. Investors prefer to deal with corporations rather than LLCs. If you want to attract venture capital, this will be the best type of business to form.

There are also cons to consider. The structure of a corporation is less flexible. You may also be subject to taxation at the entity and stockholder level.

The pros and cons of an LLC

An LLC is a business entity that limits your liability right from the start. LLCs tend to offer a much more flexible structure than corporations.

Like a corporation, an LLC offers you the major pro of limiting your personal liability. There are no eligibility requirements to deal with. LLCs also bring the advantage of pass-through taxation. There is no entity-level income tax. As a result, all income taxes are passed to and paid directly by the members.

The major cons of an LLC have to do with investment. This type of business structure is not suitable for the needs of venture capitalists. It is also more difficult to issue equity awards or an IPO. These are disadvantages that may cause you to rethink this structure.

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