5 Reasons to Start a Limited Liability Company (LLC) Vs. A Corporation

Adding Management Team Members
With a Corporation adding new executive team members (president, vices president, treasurer, secretary, etc.) can be quite a challenge because Board of Directors has to be involved in the decision-making on new management. The more people you have in the decision-making the longer the hiring process will take. With an LLC, management team members can select whomever they like without the approval of a board. LLC’s are not required to have a board of directors to select executive staff.


Start-Up

Starting an LLC only requires the brief completion of the Articles of Organization and a short application. These documents are electronic in many states and can be filled out on line within less than an hour. With a corporation one has to complete Articles of Incorporation as well as corporate by-laws. This can take anywhere from several days to several months because you have to get the input from other executive team members and a board. Even if you are the only individual incorporating you still have to complete these documents.

Reporting
The ongoing reports that are required by federal and state government is extremely tedious to complete when an organization is set up as a corporation. There are quarterly financial reports that need be completed for the IRS. There are also annual reports that need be completed for both the IRS and the state in which your business is located. Your board of directors also has to have at least one meeting per year, with minutes taken and kept in a file, documenting these meetings. This must be done in order to keep your status as a corporation. None of this reporting is required with an LLC.

Taxes
Taxation is one of the major challenges that face corporations today, especially if they are small businesses. If a corporation decides to issue shares to shareholders and a profit (dividends) is paid to the owners on those shares, then the organization will have to pay taxes on the profits. There is then a second form of taxation for corporate owners. This is the personal tax that they will have to pay because they received profits individually. With an LLC the owners only pay taxes once on their personal income no matter how much revenue or profits the organization achieved. Additionally, corporations have to pay quarterly FICA and Social Security taxes for each of their employees.

Daily Operation
LLC’s can operate more fluidly than corporations because they don’t have multiple layers of management. In a corporate structure management team members have to get approval from the board of directors before they can finalize a decision. Those who choose the corporate form of a business entity have to seek board guidance on major decisions, and in some cases minor decisions. This can make the day-to-day management very tedious. LLC’s do not need board approval to make decisions. They simply corroborate with each other and move forward on decisions from that point.