LLC (Most Recommended) (Most Ideal for Non-U.S. Citizens)
Limited Liability Company (LLC) is the most common and best business structure for most small businesses because LLC offers personal liability protection.
Having an LLC establishes your business as a separate legal entity — meaning members are not personally responsible for business debts and liabilities. In other words, if someone sues your business or if your business is liable to debtors, then your personal possessions, such as car or home, can’t be touched by creditors.
Also, unlike Corporations, LLCs enjoy pass-through taxation — meaning all the profits and losses are “passed through” the business to each members of the LLC. Members report their share of the LLC’s profits and losses on their individual tax returns, and any tax due is paid at the individual level.
The first thing most businesses do is form a LLC and as a business lawyer, I highly recommend having a registered LLC before you start your business.
Corporation is also an independent legal entity, separate from the people who own, control, and manage it. Corporations can enter into contracts, incur debts, and pay taxes apart from its owners.
In other words, the Corporation itself, not the shareholders who own it, is held legally liability for the actions and debts the business incurs.
However, Corporations are more complex than other business structures because they tend to have costly administrative fees and complex tax and legal requirements. Because of these issues, Corporations are generally suggested for more serious companies.
C-Corporation is typically not suggested for most businesses to avoid double taxation. Ask me if you have any questions about this.
S-Corporation (Recommended for U.S. Citizens, Most Tax-Friendly)
S-Corporation is a special type of corporation created through an IRS tax election.
An eligible domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S-Corporation.
What makes the S-Corporation different from a traditional corporation (C-Corporation) is that profits and losses can pass through to your personal tax return. Consequently, the business is not taxed itself. Only the shareholders are taxed.
S-Corporation offers the best of both worlds: personal limited liability protection along with the tax benefits of an LLC.
S-Corporation is recommended for most businesses as well.
Can’t decide on which business structure is right for you?
A business lawyer can help you choose the right business structure and relieve the administrative burden of registering, organizing, and forming your proper business structure with state and federal authorities.