Pros and Cons of LLC and Corp.

**oriahb** · 01-10-2007 10:14 PM

Hey,

I am relatively new here at the site but have been in business since i was in high school. All my businesses are my own and now that they are starting to succeed and take off I need to think about incorporating my self so that i can take advantage of the benefits offered to me.

currently this is my situation. I have 2 businesses with my partner. Each of us are motivated and work hard to achieve our overall goals. We need to setup a business and we are deciding between creating a corporation or an LLC. I dont really understand the nuances of each aspect of an LLC or Corporation, so maybe you guys can steer me in the right path.

I want to be safe from having my assets taken away from me in case i get sued. I want to be together but still have some independence from my business partner, in case things fall through. I want to be secure and reep as many benefits as possible.

what do you think i should do?

Our businesses primarily is focused on a website, and various forms of advertising.

We are university students.

**SSM** · 01-11-2007 01:22 AM

Go with an LLC. You can go with an LLP (limited liability partnership) with what you do with the partner. Incorporating is much more complicated, more time consuming, more paperwork, and all that.

An LLC gives you the legal asset protection of a corp with the ease of doing tax like a sole proprietorship. If you want a ton more info just google the topic and you'll get a much larger breakdown.

**ashmadux** · 01-11-2007 12:53 PM

i second that notion. and since you have multiple businesses already, you can just keep them as subdivisions of the umbrella company. with a corporation, those subdivisions have to be officially set up in very specific ways. with an llc you can set them up however you want with pretty much no restrictions at all.

-madux

**jhhardin** · 01-11-2007 01:28 PM

Originally Posted by oriahb

Hey,

I am relatively new here at the site but have been in business since i was in high school. All my businesses are my own and now that they are starting to succeed and take off I need to think about incorporating my self so that i can take advantage of the benefits offered to me.

currently this is my situation. I have 2 businesses with my partner. Each of us are motivated and work hard to achieve our overall goals. We need to setup a business and we are deciding between creating a corporation or an LLC. I dont really understand the nuances of each aspect of an LLC or Corporation, so maybe you guys can steer me in the right path.

I want to be safe from having my assets taken away from me in case i get sued. I want to be together but still have some independence from my business partner, in case things fall through. I want to be secure and reep as many benefits as possible.

what do you think i should do?

Our businesses primarily is focused on a website, and various forms of advertising.

We are university students.

Although Robert and SSM are correct, they didn't go all that deep. Let's go a little deeper.

Both LLC's and S-Corps (if you incorporated you would want to apply for S-Corp status) give you asset protection and protection against double taxation.

One of the major differences between the two is the fact that the money and power in a corporation goes to the individual that funds it. So, say you do all the work, but you have a business partner that puts up all the cash. That partner of yours would have all the financial rights and power within the company.

An LLC, on the other hand, allows the work that you do to factor into ownership, rights and power. So if your partner funds it and you do all the work, chances are the profits and rights in the organization would be divided evenly between the both of you.

This isn't all, there is much much more and you should really research it. The C-Corp, S-Corp and LLC all have their benefits and depending on your size, number of employees and the amount of money you are making, one of those 3 will be better than the other 2. But don't worry too much about it, you can change from one to another without to big of a hassle. If you are just starting out though, the LLC is a pretty wise decision.

**jhhardin** · 01-11-2007 01:33 PM

Originally Posted by ashmadux

i second that notion. and since you have multiple businesses already, you can just keep them as subdivisions of the umbrella company. with a corporation, those subdivisions have to be officially set up in very specific ways. with an llc you can set them up however you want with pretty much no restrictions at all.

-madux

On the surface this seems like a good idea. Pretty easy to handle all your taxes and so on, but think about this - if one of the subdivisions of your LLC is sued and it ends up owing much more than that division can make, the assets of the other divisions can be drained and the all of them go bankrupt.

It is much safer to set up each one as a separate entity by registering it as an LLC, then they can't suck the life out of each other if one or more of them goes down.

**SSM** · 01-11-2007 02:15 PM

Originally Posted by jhhardin

On the surface this seems like a good idea. Pretty easy to handle all your taxes and so on, but think about this - if one of the subdivisions of your LLC is sued and it ends up owing much more than that division can make, the assets of the other divisions can be drained and the all of them go bankrupt.

It is much safer to set up each one as a separate entity by registering it as an LLC, then they can't suck the life out of each other if one or more of them goes down.

Yes you are right with that. Luckily in Michigan an LLC only runs $50 and a simple form sent into the state gov't.

But, don't be fooled, a corporation's parent company can be sued just like the parent of the LLC division.

**MrFuton** · 01-12-2007 09:44 AM

With all of the previous comments, I still vote LLC. We were a C-Corp for 10 years and just recently shut that down and are now an LLC. We are a husband and wife team with no employees and a few online stores.

You should consult an accountant in your state that understands the pros and cons of all of these and is familiar with your states LLC program.

**toptemp** · 01-12-2007 10:36 AM

At this moment, don't consider anything else than an LLC. I don't have time to explain all the differential benefits, however, I'll say that this recommendation is based upon solid advice from my professional lawyers, accountants, professors, and advisors. This advice assumes that all of my assumptions regarding your business(es) are correct, which they should be.

Most likely, you'll want to draft a partnership agreement in which you can stipulate the important details regarding the partnership aspect of the business.

If you're "successful" enough to have an attorney incorporate you and draft the latter document, you should do so. If you're not to such a point, don't worry about making too big a deal about the incorporation and just go simple for now.

**greggomatic76** · 01-12-2007 12:17 PM

When I was looking into creating my LLC I contacted my local SBDC center. They are a free goverment provided service to help small business owners start and develop businesses, it helped quite a bit, although I would suggest you do a little research on the differences between LLC, s-corps, etc. before you go so you can actually hold a conversation with them (this is what i didn't do). The link for the main page is http://www.sba.gov/sbdc/