Category: Choice of Entity—General

WHY DO BUSINESS FOUNDERS ALMOST ALWAYS FORM THEIR NEW BUSINESSES AS LLCS INSTEAD OF CORPORATIONS?

There are three main reasons:

  • LLCs have a much simpler legal structure than corporations, and this structure is more practical for most small businesses than the corporate legal structure.
  • Both corporations and LLCs provide statutory limited liability. However, multi-member LLCs provide certain additional and important statutory business asset protections—called charging order protections and pick-your-partner provisions—that corporations don’t provide.
  • The best federal tax regimen for individuals who own single-owner businesses is taxation as individuals, and for multi-owner businesses it is Subchapter K.  Under the relevant federal tax rules, LLCs that are owned by one individual can be taxed as individuals and multi-member LLCs can be taxed as partnerships.  This federal tax treatment is unavailable to owners of corporations.