When to form an LLC (Limited Liability Company) (Links to an external site.)Links to an external site. discusses why the LLC is one of the most popular types of business entity. After reading the article and Chapter 30 of the textbook, compare an LLC with a C corporation and with an S corporation. If you were operating your own business, would you choose the LLC as the organizational form for your business? Explain your reasoning.
Guided Response: Respond to at least two of your fellow students’ posts in a substantive manner. Some ways to do this include the following, though you may choose a different approach, providing your response is substantive:
Address students who made the same choice that you did regarding whether to choose the LLC as the organizational form for their business. Using the information from the course textbook and the article, play the role of devil’s advocate and argue why some other type of entity (C corporation, S corporation, or LLC) would be a better choice.
The limited liability company is for large corporations, especially if they have multiple owners. It can be less of a headache if large corporations were to use a LLC to file their taxes because they only have to file a few forms. With the S and C corporations, they have to do more bookkeeping regarding their profits and deductions. S corporations are for small businesses that must not “have more than 100 shareholders or a nonresident alien as a shareholder and not have more than one class of stock” (Seaquist, 2012, p. 30.2). The c corporation on the other hand does not have a restriction on how many shareholders they have, and they do not have to be in the United States.
One thing that all these business entities have in common is that they all have limited liability, which “means that you can generally protect your personal assets if there is litigation or bankruptcy of your company” (Taulli, 2016). This is the most important aspect to have when a company is getting sued for a substantial amount of money because they do not have to worry about losing their homes, cars, savings, etc. When first getting a business of the ground, it can be difficult to gain a large amount of profit after paying for deductions which includes wages, insurance, products and taxes. “The greatest disadvantage of organizing a business as a corporation is the double taxation to which corporate profits are subject.” (Seaquist, 2012, p. 30.2). Having to pay taxes on a corporate and personal level can cause an organization to go out of business due to the fact they will probably have to use all of their profits to pay their taxes, which is why I would use a s corporation, because of the tax breaks and not having to answer to anyone.
Seaquist, G. (2012). Business law for managers. Retrieved from https://content.ashford.edu/
Taulli, T. (2016, Jul. 24). When to form an LLC. Forbes. Retrieved from https://www.forbes.com/sites/tomtaulli/2016/07/24/when-to-form-an-llc-limited-liability-company/#fea454e4e0d9 (Links to an external site.)
Formation of Limited Liability Company (LLC) is considered to be valuable for small sized or a medium sized partnership firms or sole proprietorship firms. The major benefit involved in case of LLC is that the liability of such companies is limited and the complexity involved in LLC is much lesser, when compared to other firms. Secondly, the cost involved in these firms are very low(IT, 2017). These are one of the few reasons, why it is preferred in business entities. A distinct characteristic of LLC is that, it does not indulge into double taxation which is similar in comparison to C corporation.
The LLC and S corporation hold many similarities like in terms of protection provided to the owners or shareholders. Secondly, the state requirements are also similar. Both them follow the concept of pass through taxation(IT, 2017). The only difference is that it is mandatory for S corporation to file its tax return but in case of LLC, they need to file their returns only if the number of owner is greater than one.
The main difference between LLC and S corporation while LLC can have innumerable number of shareholders but for S corporation, the maximum number cannot be greater than hundred.
The ways of offering limited liability is different for LLC and C corporation. In case of C corporations, the filling for incorporation must be done at state level itself. They are effected by double taxation as first the income is taxed at the entity level and next when they pass through the shareholders. The C corporation follow formal system of management.
I would definitely like to choose LLC as the organizational form of business because it involves low complexities and cost and at the same time provides protection in the form of limited liability and is also convenient for sole proprietorship form of business.
IT, S. (2017). S Corporation: What Is An S Corp? | incorporate.com. Incorporate.com. Retrieved 21 November 2017, from https://www.incorporate.com/s_corporation.html
IT, S. (2017). What is an LLC? Form a Limited Liability Company | incorporate.com. Incorporate.com. Retrieved 21 November 2017, from https://www.incorporate.com/limited_liability_company.html