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Factors to consider when choosing between a LLC or Corporation

| Apr 29, 2020 | Business Formation |

Many people in Nebraska have worked for other companies for a long time and want a chance to become their own boss. They may have a great idea for a product or know they have a client base large enough that they could branch off and have their own company. When people come to this realization it can be a very exciting time, but it can also be nerve racking as there are many aspects to running a business besides simply doing the work.

One of the very first decisions that needs to be made, is what kind of entity to form. There are different options such as a sole proprietorship, a partnership, a Limited Liability Company (LLC), a corporation and others. Two of the more popular choices though are an LLC or a corporation. Both create a separate legal entity, which can protect the individual owners from liability for company debts and other legal actions taken against the company, but there are differences that need to be considered.

One is that they are taxed different. LLCs are known as pass through entities which means that the owners report the earnings of the company on their individual tax returns. Corporations are taxed separately based on the profits earned by the corporation. The owners would then be taxed for the individual income they earned through salaries and bonuses.

Another difference is that LLCs are owned by the members and corporations are owned by shareholders. LLCs are also managed differently and have more flexibility as the owners can generally manage how they feel fit. However, corporations are ran by the Board of Directors who create bylaws which dictate everything. The required annual reporting rules and meeting requirements differ between LLCs and corporations as well.

As one can see there are differences and it is important for people in Nebraska to know what entity best fits the needs of the company. Once this is determined, the business formation documents will need to be drafted and filed with the state. It is important these are drafted correctly and consulting with experienced attorneys may be beneficial.