In this week's Freedom Friday blog and email newsletter, I want to talk about a question that I don't get asked a lot about, but it sometimes comes up, and that's what kind of business entity they should form.  Should I form an LLC, or a corporation, or something else?  That's the question.  Now, there are some small business owners who automatically think LLC, and in many cases, that's the best answer.  There are other small business owners who automatically think they should incorporate, and that may or may not be the best answer, depending on the circumstances.  So, in today's Freedom Friday blog and email newsletter, I'm answering the question, “Should I incorporate or form an LLC?”

An LLC and a corporation share some similarities in that both business structures have common features like personal liability protection which keeps the personal assets of the owners from being taken by creditors to satisfy the debts and liabilities of the business.  However, there are several key differences between the two.  Here are three (3) key differences between an LLC and a corporation to consider when choosing a business entity for your small business:

1.    Time and Experience

The first key difference between an LLC and a corporation that you should consider when choosing a business entity for your small business is the amount of time and experience you wish to invest administratively in the new business entity.  An LLC is usually inexpensive, quick to form, and easy to manage for a small business owner.  In Oklahoma, you only have to pay $25.00 and fill out a short form for the LLC's annual certificate.  In an LLC, you have more time to manage your business along with any employees.  However, if you incorporate, more details are required for your articles of incorporation and bylaws.  The structure of the corporation is also more formal, and in Oklahoma, when you form a corporation under Oklahoma law, there are special registrations required with the Oklahoma Tax Commission (those registrations do not apply to LLCs).  Thus, a corporation will require you invest more time administratively compared with an LLC.

2.    Taxes

The second key difference between an LLC and a corporation that you should consider when choosing a business entity for your small business is taxes.  The default tax arrangement for an LLC is pass-through taxation.  This means that the profits of the LLC will pass through to you as the small business owner, the “member” of the LLC, and then you can you report and pay taxes as part of your individual tax return.  The LLC itself does not pay taxes on earnings.  However, a corporation's taxes are subject to double taxation.  A corporation usually has to file its own business tax returns and pay taxes on any profits.  Then, if the corporation makes a distribution of profits to the owners or shareholders, those individuals must also report the same on their individual tax returns, as well.

3.    Outside Investment

The third key difference between an LLC and a corporation that you should consider when choosing a business entity for your small business is whether you need outside investors or other people to help raise capital for your small business.  If the initial owners of the business are just you, you and your spouse, or even a small group (less than ten owners), then an LLC may be an appropriate choice.  However, if you intend to have more than 10 (ten) owners, then a corporation might be a better fit since a corporation's shares may be easier to transfer than a member's (owner's) interest in an LLC.  Also, if you think that individuals may want to join or leave the business frequently, a corporation may also be a better fit than an LLC.

Thinking about starting a small business?  Or maybe your small business is having issues with contracts, leases, business partners, collection issues, or experiencing other barriers to growth?  Please contact me at [email protected] to schedule a FREE strategy session.

For more information about Liberty Legal Solutions, LLC, please visit our website at http://www.libertylegalok.com/