LLC vs C-Corp: Best Business Legal Structures for My businesses?
Updated July 12,2021
Starting or expanding a business to the United States is a dream for many entrepreneurs around the globe. If the US launch is well-planned and successfully executed, it can become a dream come true. However, if you don’t have the right legal and logistical practices in place, those dreams may be dashed. One of the most important first steps is to understand the different business legal structures and which is optimal for your business.
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Business Legal Structures: Choose Your Direction
The business structure that you choose will determine how your company operates. It will also determine your legal liability, certain taxes, and what rules and regulations you must adhere to. Choosing the right structure is therefore extremely important. There are many different types of business legal structures, but only two are available to non- residents: LLC or C-Corporation. Let’s look at both in-depth.
A Florida LLC (limited-liability corporation)
What is an LLC?
An LLC, or limited-liability corporation, is a legal entity that is composed of “members” who own and operate the company. The members are bound by a signed agreement rather than by the ownership of stocks or grant options.
An LLC is often called a “hybrid structure”. It gives members the personal liability protection of a corporation. That means your personal assets are not affected by company debt. But it also provides the pass-through taxation benefits available to a partnership. This means that the company itself is not taxed. Instead, taxes are passed down to the members and applied to their personal income taxes. This is why the majority of small and new businesses in Florida start as an LLC.
LLCs are regulated based on state statutes. So, the rules and requirements may vary based on which state your LLC is organized under. For our purposes, we are discussing the Florida statutes. Let’s take a look at the advantages and disadvantages of choosing an LLC structure.
Advantages of an LLC
- Members have liability protection for their personal assets against company debts or lawsuits.
- There are no restrictions on membership; an LLC can have as many members as desired, and they can be individuals, corporations, or foreign residents. This is particularly enticing for foreign residents.
- Pass-through taxation prevents the “double taxation” that occurs in a Corporation.
- An LLC provides flexibility in tax structure, profit distribution, and management structures.
Disadvantages of an LLC
- An LLC cannot benefit from the sale of company stock.
- In order to be eligible for the partnership taxation structure, an LLC must have at least two members; single-member LLCs are allowed, but they are taxed as a sole proprietorship.
- Members of an LLC are subject to the self-employed taxation rate and may incur high social security and Medicaid costs.
- There are higher filing and administrative fees for an LLC than for other business structures.
Before we proceed further, we should note that not all businesses can operate as an LLC. Companies such as banks, financial trusts, and insurance agencies typically cannot file as an LLC. Each state may also regulate industries differently by each state. Visit your state’s business resource center to see which businesses are eligible to file as an LLC. There are other business legal structures that may be better suited for your business.
What is a C-Corporation?
A C-Corporation is a corporate structure that legally separates the assets of a company from those of its owners. They are the most common type of corporation. The owners of a c-corporation are its shareholders. Their ownership in the company is based on the amount of company stock that they own. Shareholders must elect a board of directors in a public forum annually to govern and operate the company.
This type of structure provides a great deal of liability protection for the owners. It also creates unlimited growth potential through the ability to sell stock. But it creates a double-taxation dilemma. First, company earnings are taxed prior to distribution. Then the dividends received by the shareholders are taxed again at the personal income level.
The majority of C-Corporations in Florida are large companies with 8-figure profit scales.
Here are the advantages and disadvantages of a Florida C-Corporation:
Advantages of a C-Corporation
- The ability to sell stock allows companies to maximize profits and retain shareholders.
- Corporations are more enticing to investors.
- Shareholders have liability protection for their personal assets.
- The ability to write-off business expenses as tax deductions (healthcare benefits, office equipment, etc.).
Disadvantages of a C-Corporation
- Profits are double-taxed at the corporate and personal tax levels.
- Corporations are subject to a 5.5% corporate income tax in Florida.
- They must follow a strict, regulated management structure.
- Corporations must have enough capital from investors to issue initial stock certificates when incorporated.
For more details on a C-Corporation, visit this great article on Incfile.
As you can see, the two types of business structures available share the benefit of liability protection. However, they are otherwise very different. LLCs have an easier set-up, flexible structure, and impressive taxation benefits. Therefore, an LLC is usually a better option for your small or new business. We will be discussing how to start an LLC in Florida in the following steps.
Business Legal Structures: After you Select One
After you determine which business structure you will be going with, you need to register your business. Business registration within a state requires a business address and a Registered Agent.
A virtual office is a service that provides businesses a physical address plus other services without the high costs of a physical office space. For entrepreneurs looking to run a business from home, a Virtual Office gives them a jump start. Virtual Offices offer business solutions that range from basic to more comprehensive needs.
At the basic end, Virtual Office providers, such as Starthub, will give you both a physical address and Registered Agent. In order to register your business, you must designate a Registered Agent. If you don’t register your business with the State, then you really don’t have a legitimate business. A physical business address is a better option than using your home address or a PO Box. It establishes your presence in a desired location without the high overhead or rental costs.
Now, for the more comprehensive end. It enables you to work virtually anywhere in the world while still enjoying the benefits of a physical office. Virtual offices offer a range of services to help your business run efficiently from wherever you are! Aside from a physical address, a virtual office can come with a variety of features. These can maximize your efficiency and boost your business credibility. Depending on your provider, a virtual office can also provide features such as:
- Virtual mailbox and mail management services
- Local or toll-free phone numbers
- Live receptionists or answering services
- Access to meeting spaces
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After Business Registration
Now it’s time to establish your business and find customers. Check out these articles for what comes next.