LLC or Corporation?
How to Choose the Right Form for Your Business
LLC or Corporation?
How to Choose the Right Form for Your Business
Anthony Mancuso, Attorney
November 2014, 6th Edition
Choose the legal entity with the best legal and tax advantages
Whether you are starting a new business or thinking about an existing one, the big question is "which legal structure is best?" The answer has important legal and tax consequences.
LLC or Corporation? explains:
- the basics of all business entities
- why sole proprietorships and partnerships are usually a poor choice
- how to avoid being personally liable for business debts
- how profits and losses are taxed in all business entities
- how to convert from one business entity to another
- doing business beyond your state
Making the right choice will affect your bottom line in many ways -- from what you pay in taxes to your ability to seek money from investors. LLC or Corporation? is packed with real-world examples to help you make the best choice for your company.
This edition has been thoroughly and usefully updated with the latest resources for business owners and contains completely updated information regarding the tax status of small business entities.
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1. Business Entity Basics
- Why Your Choice of Entity Matters
- Sole Proprietorships
- General Partnerships
- Limited Liability Companies (LLCs)
- ...And the Runners-Up: Limited Partnerships, S Corporations, and RLLPs
2. Personal Liability Concerns
- How Your Choice of Business Entity Affects Personal Liability
- Using Insurance to Limit Liability
3. Forming and Running Your Business
- Forming and Running a Sole Proprietorship
- Forming and Running a Partnership
- Forming and Running a Limited Liability Company
- Forming and Running a Corporation
- Resources for Forming an LLC or Corporation
4. Money Issues: Taxes, Profits, Losses, and Investments
- Paying Out Profits
- Start-Up Losses
- Institutional and Venture Capital
- Planning for a Public Offering
5. Doing Business Out of State
- Doing Business Out of State
- Qualifying to Do Business
- Paying and Collecting Taxes in Other States
- Lawsuits in Other States
- Internet Issues
6. Converting a Sole Proprietorship to Another Entity
- Converting a Sole Proprietorship to a Partnership
- Converting a Sole Proprietorship to an LLC
- Converting a Sole Proprietorship to a Corporation
7. Converting a Partnership to Another Entity
- Converting a Partnership to a Sole Proprietorship
- Converting a Partnership to an LLC
- Converting a Partnership to a Corporation
8. Converting an LLC to Another Entity
- Converting an LLC to a Corporation
- Converting an LLC to a Sole Proprietorship
- Converting an LLC to a Partnership
9. Converting, Dissolving, and Selling a Corporation
- Converting a C Corporation to an S Corporation
- Liquidating and Dissolving a Corporation
- Selling a Corporation
10. Business Choice and Conversion Scenarios
- Fast Food Fusion: A Start-Up Business Chooses a Business Form
- Bill and Barbara Seek Investment From a Relative
- Soaring Duck Designs Seeks Lower Taxes and a Structured Hierarchy
- Silikonics Creates an Entity to Attract Outside Investors
- The Surf Side: From Lunch Counter to LLC to Corporate Franchise
Appendix: State Website Information
- State Business Entity Filing Websites
- State Tax Office Websites
- State Securities Office Websites
Your Legal Companion
One of the most important and difficult choices you make when starting a business (whether by yourself or with others) is trying to figure out whether a limited liability company (LLC) or corporation will best meet your needs. An equally difficult decision occurs if you have already organized your business but want to explore the possibility of converting to a business entity with more favorable legal and tax characteristics.
In both cases, this book will help you with your decision.
Although the focus of this book is on choosing whether to form an LLC or corporation, you cannot make an informed decision without learning about all the types of business entities—including sole proprietorships, partnerships, LLCs, and corporations. This book explains the legal and tax characteristics of each of these business entities and the basic rules for converting one type of business to another.
This book also provides information about some of the less well-known ways of structuring a business. For example, two legal spin-offs of the basic partnership form—the limited partnership and the registered limited liability partnership—are discussed. This book also covers S corporations, which have some characteristics of the more well-known C corporation (including limited liability) but are taxed like a partnership.
I’ve divided this book into two parts.
Part One discusses basic information about each type of business entity. It includes the following chapters:
- Chapter 1 discusses each type of business entity, including the relative advantages and disadvantages of each.
- Chapter 2 explains how your choice of entities affects your personal liability for debts against your business.
- Chapter 3 examines the relative ease with which each of the entities can be formed and managed.
- Chapter 4 covers how each entity deals with profits, losses, investments, and taxes.
- Chapter 5 explains how doing business out of state may affect your choice of entity.
Part Two includes the following chapters:
- Chapter 6 discusses converting a sole proprietorship to another entity.
- Chapter 7 discusses converting a partnership to another entity.
- Chapter 8 discusses converting a limited liability company to another entity.
- Chapter 9 discusses converting a corporation to another entity, and reorganizing or dissolving a corporation.
- Chapter 10 provides examples of various conversion scenarios discussed in previous chapters.
This book also includes links you can use to find information regarding your state’s corporate and LLC rules, as well as tax and securities laws information (see the appendix).
Business law and tax rules can get a bit complicated. Don’t worry. They’re presented here in real-life contexts, without off-putting legal or tax jargon, and without the technicalities best left to legal and tax professionals. By the time you finish this book, you’ll understand what each type of entity has to offer, and you’ll be ready to choose the right structure for your company. By the way, Nolo (www.nolo.com), the publisher of this book, provides many ways to assist you when it comes to corporations and LLCs, including assistance with state filings, helpful books, and lots of free information. Visit the site and click “Business Formation,” on the left side of the home page.
Get Updates and More at This Book’s Companion Page
When there are important changes to the information in this book, we’ll post updates at a special URL that is included in this book when you purchase it. You will also find other helpful information there including interviews with the author, Anthony Mancuso.