Getting your business off the ground is a tricky thing. You've managed to scrape together the money to fund it, but what's next? You're looking at the situation and scratching your head; lost, confused, and in the dark.
We're here to help you. Here, we'll make what you need as clear as day. Let's get started.
An LLC is a limited liability company. Though they are often noted to be on the smaller-sized side of the scale, that isn't always true. There are larger LLCs out there. However, most of them are very closely-knit groups of people intent on bringing out the very best in their company.
In an LLC, "members" hold the stakes of the company in their hands. They make the big decisions and own a percentage of stakes in the company instead of stocks. While this isn't the only difference (we'll get to that), it's one of the most important ones.
A corporation is what most people think of when they think of a company. It is a large, stock-owned entity that operates for profitable business within a certain amount of time; typically splitting the year into fiscal quarters (90 days) and reporting to stock owners. These owners then have a voice within the corporation as to the direction it then takes.
While this may sound like an LLC, the semantics are important. Stockholders need not have anything but ownership of the stocks. LLC members tend to have a stake in the company on a deeper level and are often employees of it. While stockholders can be employees of a corporation it is somewhat less likely and, in the case of publicly traded corporations, completely unnecessary.
Largely? Taxation and participation. Taxation of corporations is typically seen as a higher risk based on profitability. However, corporations are particularly efficient at wiggling out of required income taxes. LLCs? Maybe, maybe not.
LLCs are usually the easiest business to set up for first-timers and small businesses. They require very little to begin and offer an affordable way for individuals to protect themselves in case of lawsuits or tax incidents.
The requirements of an LLC differ from state to state. However, most require that certain paperwork be filed and annual reports sent in. We recommend speaking with your Department of Revenue for your exact state requirements regarding an LLC.
However, some of the things you'll likely see may be a request for a business plan, your personal identification, and the request to fill out the articles of organization in regard to your LLC. Want to learn more? We have several articles talking about your articles of organization and how to fill them out. Click here for more information.
The requirements for incorporating are very close to those for an LLC. The articles of incorporation are similar in many ways to an LLC's articles of organization. The biggest difference is the way the company is owned. Again, incorporations come with stocks and stockholders. You must notate this on your articles of incorporation.
Again, you may also see requests for a business plan or taxation filing. Some states desire more information than others do. We recommend stopping by your Department of Revenue to get started with the exact requirements for your state. If you would like to know more, we have articles classified by state regarding the requirements of incorporation right here.
That all depends on the type of business you're running, the scope of it, and how you want to proceed in the near future. Any LLC can be turned into an incorporation with a little time and effort, if so desired. However, it is generally relatively difficult to turn an incorporation into an LLC.
Why is that? Because when you "devalue" your business into an LLC, you have to buy back the stock that has been sent out or turn the stockholders into members. Since being a member requires you to have some responsibility in the company other than fiscal gain, many stockholders back out and simply want to sell their shares back to the company.
An LLC is a wonderful way to test the waters and protect yourself for a business venture. If you are already experienced and know that you desire to push your business to higher heights, an incorporation may be the best way for you to continue on your personal business journey.
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