Substance of your business should guide the legal form of your company.
We all eventually dream to create our own business. Don’t we?
If you are still on the fence, check out the reasons for your company registration in the US.
What often impedes entrepreneurs, though, is an uncertainty of which corporate form to choose: LLC, Corp, LLP, JV, SP, or anything else.
Wouldn’t it be nice to have a clear-cut solution?
This video post will help you boil down your choices to one and select the right legal form. That’s something you might have to fork over several Benjamins for in legal fees.
Your company legal form is just one piece of your incorporation puzzle. To get the big picture, see how to incorporate your business in the US.
First off, do you actually need to incorporate, that is to create a company? The answer is clear: Yes, of course! The main reason is to limit your personal liability. Otherwise, all your assets would be at risk of loss.
So, where should you start from? The substance and form — like in philosophy. The substance of your business should guide the form the business takes.
Ltd. vs. Inc.
Nowadays, the most prevalent incorporation forms are:
- limited liability company (shortly LLC, Limited, or Ltd.); and
- corporation (shortly Corp. or Inc.).
There are also some exotic legal forms, such as sole proprietorship and partnership. They are, however, unlikely worth your attention.
The LLC is perfect to test a business idea. It’s quite appropriate for a small business. The LLC is more flexible and less formalistic than a corporation.
The latter, on the other hand, is more suitable for a large business. The corporation, for instance, fits high-tech startups attracting venture capital and ultimately doing an IPO. So, if you’re paving your path to the NASDAQ or New York Stock Exchange, in particular, the corporation is the way to go.
Selecting a legal form, also pay special attention to its taxation options.
With the LLC, for example, you may elect a pass-through (i.e., partnership-type) or double (i.e., C-Corp-type) taxation treatment.
This topic will be subject of our separate post.
To conclude, your two primary options are the LLC and corporation. To reduce the two further down to one, the most widespread appears to be the LLC. Absent any compelling reason to opt for a corporation, your choice should most likely fall on the LLC.
To start your business, feel free to download our business setup checklist (infographic). For an ultimate guide on how to open your business in the US, watch our webinar.
On the other hand, if you prefer not to start a business from scratch, check out how to buy a business, be it an LLC or corporation.
Moreover, if you already own a business, learn how to defend your company against a hostile takeover.