Corporation or Limited Liability Company?

Both are ways to attempt to avoid personal liability by creating a separate legal entity which is recognized as a person under the law.  If one chooses to limit liability in this way it is important to remember that the mere fact of incorporating the business or forming the limited liability company is not enough.  One must hold out for the world to see that they are dealing with a separate entity and cannot reasonably expect personal liability from the owners of the business.  In this regard, the name of the business should always show the limited designation when the name is displayed, e.g., on signage, stationery, business cards, etc.  And when signing for the company the signer should always have his or her office following the signature, e.g., John Doe, President.  Finally, in case the corporate or limited veil is pierced, liability insurance is always recommended to a business owner.

While limiting liability probably is the most important reason for forming a small company, tax treatment is also a consideration.  Companies are usually taxed at a lower rate than a high income individual, and companies sometimes can elect a fiscal year end other than the calendar year.

By the way, corporate records should be kept of all major transactions, and corporate records should be updated at least annually.  These record keeping requirements are statutory, and are not as stringently found in the later year statutes which allow the creation of limited liability companies.  This is the main difference we have found between corporations and limited liability companies.    The next major difference is that LLCs pass through all income directly to the members, with no lower taxation applicable to the LLC entity.  Finally, LLCs cannot elect a year end other than the calendar year end.

Contact Mr. Daniel L. Henderson for more details on this service.