When starting a new business, an early decision involves choosing a legal structure for your operations. A popular choice for many is a limited liability company (LLC), which is relatively simple to set up and maintain.
While an LLC is ideal for many, if not most, entrepreneurs, there are some situations where a corporation might be the wiser choice. Consider all relevant factors when choosing your business entity, including the examples below.
There are plans to go public
A corporation can be publicly traded on a stock exchange, while an LLC cannot. Taking a company public can provide access to more capital, increase business visibility and create liquidity for your shareholders.
You want to attract investors
Investors usually prefer corporations because of their more formal and standardized structure. They tend to like corporations that offer the chance to become a preferred stockholder, which comes with valuable benefits.
You have tax concerns
Sometimes (but not always), corporations have tax advantages over LLCs, such as lower rates, better deductions and earnings retention. Ensure you identify your tax goals, risks and concerns before choosing your structure.
Ownership is complex
Many LLCs operate less rigidly than corporations. The more formal corporate structure may serve you better if your company has multiple shareholders or complex ownership percentages.
You can change your mind
Of course, you always hope your business decisions are sound and in your best interests, but your structure need not be permanent. If you believe you made a mistake or have outgrown your original choice, you can take steps to change your company’s legal entity.
Consider speaking with someone who understands the risks and rewards of different business structures and how they work in Texas. Legal guidance can do much to lower your business risks across the board.