As you prepare to start a new business, there are several decisions you will need to make to ensure that it launches as smoothly and successfully as possible. From finding a commercial space that suits your needs to setting up an accounting system that works for your business, it’s natural to feel slightly overwhelmed by the sheer number of tasks before you. One of the most important decisions that new small business owners will need to make concerns the structure of the business itself. Selecting a business entity, such as a sole proprietorship, limited liability company (LLC), or corporation, can be a nuanced endeavor, especially for those who are not familiar with the potential benefits and drawbacks of each structure. Working with a highly experienced and trusted Alabama and Texas business formation lawyer is the best way to empower you to make more informed choices with greater confidence. Although Texas and Alabama do not require new business owners to hire legal counsel in order to launch a company, doing so is highly recommended to minimize potential risks while setting your business up for a stable and secure future. This post will focus on two common types of business entities, LLCs and corporations, and how working with a skilled Alabama and Texas business formation attorney can help you identify the best business structure for you and your company’s goals.
Limited Liability Companies (LLCs)
First, we will take a look at one of the most popular business structures that prospective business owners tend to choose in order to launch their companies with confidence. According to the U.S. Small Business Administration (SBA), limited liability companies (LLCs) “protect you from personal liability in most instances, your personal assets—like your vehicle, house, and savings accounts—won’t be at risk in case your LLC faces bankruptcy or lawsuits.” In other words, LLCs offer personal liability protection in the event that another party takes legal action against your business. This type of entity typically works well for small businesses and family-owned businesses who are looking for a flexible and simple business structure that shelters them from personal liability. If you are wondering, “Is there an experienced LLC lawyer near me,” the answer is yes—reach out to the caring and dedicated legal team at Sewell Sewell Beard LLC today to get started.
Corporations (S-Corps and C-Corps)
Another option for structuring your new business is to form a corporation. The SBA explains, “A corporation, sometimes called a C-Corp, is a legal entity that’s separate from its owners. Corporations can make a profit, be taxed, and can be held legally liable.” Moreover, the SBA notes that “Corporations offer the strongest protection to its owners from personal liability, but the cost to form a corporation is higher than other structures.” A primary difference between an LLC vs. corporation is that corporations pay income taxes on their profits. C-Corps may be taxed twice—once when the company makes a profit, and another time when the dividends are paid to the company’s shareholders on their personal tax returns. Another type of corporation, called an S-Corp, is a “special type of corporation that’s designed to avoid the double taxation drawback of regular C-Corps.” Essentially, an S-Corp allows the profits to pass directly to the individuals’ personal income without having to pay corporate tax rates. Generally speaking, corporations tend to serve medium or higher-risk businesses that plan to “go public” or be sold at some point. To learn more about whether a corporation could work best for your business needs and goals, reach out to a knowledgeable Sewell Sewell Beard, LLC business formation attorney to get started.
Key Comparisons: LLC vs. Corporation
When it comes to comparing an LLC to a corporation, there are a few similarities worth noting. First, both of these entities are considered legal “persons,” meaning they are separate identifiable entities from any of the individual owners. In other words, the owners can generally expect to be protected from personal liability for any lawsuits or business-related debts. Another similarity is that both entities may be formed by filing a “certificate of formation” with the Secretary of State in your jurisdiction (depending on where your business is located). The primary differences between LLCs and corporations are their governance structure and taxation, both of which are explored below.
Governance and Management of LLC vs. Corporation
For the most part, corporations are much more structured and rigid when it comes to matters of governance and management. Shareholders must elect a board of directors to appoint corporate officers so that they can manage the corporation. Corporations must also keep records in accordance with several rules and regulations, such as including written minutes of director and shareholder meetings. LLCs, on the other hand, provide more flexibility for the owners to establish their own management structure. Many LLCs create an operating agreement to document important management practices and procedures to minimize potential misunderstandings or conflicts.
Taxation Considerations for Corporations vs. LLCs
Another key difference between LLCs and corporations concerns tax structure and obligations. LLCs may be considered “disregarded” for tax purposes, meaning that the individual members of the business report any income as a partner in a general partnership or as a sole proprietorship (if the LLC is run by one person). In contrast, C-Corporations can be subject to double taxation, and the specific tax requirements and reporting obligations can be more nuanced and complex to navigate without the guidance of a highly qualified and experienced business attorney.
Choosing the Right Entity to Support Your Business Goals
When it comes to the success of your new business venture, you deserve exceptional legal support at every opportunity. At Sewell Sewell Beard LLC, our team of caring and knowledgeable business attorneys is prepared to work by your side to ensure that your business moves forward with the stable and secure foundation it needs in order to grow and thrive. We encourage you to get in touch with us today to discuss your concerns with a Texas business incorporation attorney and Alabama business formation lawyer who can help you identify the most strategic path forward.
Are you looking to explore your options for launching a new business in Alabama or Texas? The dedicated and knowledgeable legal team at Sewell Sewell Beard LLC is here to provide you with the customized guidance and support you need to proceed with confidence. Please contact our Jasper, Alabama office at (205) 544-2350 or our Prosper, Texas office at (972) 777-5390 today to get started with a trusted and experienced business formation attorney.
