There are many great reasons to form a new business in Texas, but first, it’s a good idea to understand what type of company you want to create. Two popular options are to form an LLC or a corporation. To help you learn the best option for your new business, here are the advantages and disadvantages of forming an LLC or a corporation.
Advantages of forming an LLC
When choosing an LLC vs. incorporation, it makes sense to choose the option with less paperwork. Fortunately, it’s much easier to form an LLC than it is to create a corporation. With an LLC, you’ll only need to file articles of organization. Plus, creating an LLC offers tax advantages that are hard for incorporation to match. This means saving money as you start your new company.
Disadvantages of an LLC
Speaking of taxes, a disadvantage of forming an LLC is that you’ll need to pay a self-employment tax. Another disadvantage of an LLC is that in certain situations, this type of business is open to an automatic dissolution.
Advantages of incorporation
You might think that when it comes to business formation, an LLC is the way to go. However, incorporation does have its advantages. For one, you have lots of flexibility for excess profits by forming a C or S corporation. An S corporation can pass losses and income to shareholders, who report their taxes on an individual basis. A C corporation can keep profits within the company and pay them as shareholder dividends.
Disadvantages of incorporation
If you decide to form a corporation, get prepared for filing more paperwork, gathering a board of directors and following many guidelines. Another disadvantage of forming a corporation is double taxation, which involves corporations paying taxes and shareholders getting taxed on dividends.
It’s understandable to feel confused when forming a new company. If you need help with this decision, consider contacting a business formation lawyer. You can gain more peace of mind that you’re making the right decision.