Startups News: Corporation vs LLC, The Latest Trends

The pandemic has been accompanied by a range of obstacles and challenges for most, if not all people, across the globe. Due to this many have lost their jobs and have had to find new or alternative forms of income. This has led many people to start their own business, as there have been 427,842 business applications in August 2021 alone. When forming a startup, an entrepreneur must choose a business form. This article will explore the latest trends of corporations and LLCs to assist entrepreneurs in selecting a business form.

Corporation vs LLC: Differences

Corporations is a business form which sees a group of people being able to operate the business together as they deem fit. The main benefit of forming a corporation is that it is entitled to a corporate personhood which allows the business to have the same rights as a person does. Due to this, corporations are allowed to purchase assets, and are able to be sued. Additionally, they offer legal protection to the individuals involved in the business. Therefore, these individuals are not able to be held liable for business debts or lawsuits. For entrepreneurs interested in forming a corporation, see how to form a corporation.



Limited liability companies (LLCs) is a business form which serves to protect business owners from being held liable for debts of the business. This business form contains the benefits of a partnership and a sole proprietorship. These businesses can be owned by one person, or multiple people. Regarding taxation, LLCs are known as pass-through entities. The profits and losses of the LLC are taxed as the personal income by the owners of the LLC. Alternatively, owners of this business form are able to select their LLC to be taxed as a C corporation or an S corporation.

How to form a corporation

1) Choose a Name. The names of corporations have to be unique, as well as legally compliant. Depending on the state of business, the rules for naming differ, but there are a general set of rules which apply to all states regarding naming:

The name cannot contain words which are related to a government agency
A licensed individual may be necessary if the name contains the words "bank," "attorney" or "university".

2) Designate a Registered Agent. These agents serve as a point of contact for corporations.

3) Filing the articles of organization. The corporation will have to be registered with the secretary of state by filing the articles of organization. This would require the names and contact information of corporation's members, the business name and address, etc.

4) Draft the corporate bylaws. This is legally required seeing that the document outlines many of the corporation's organizational policies. Information required for this document is usually basic information about the business, the business's statement of purpose, directors and officers, fiscal year schedule, etc.

5) Obtain an EIN. This federal tax ID number would allow businesses to open bank accounts and hire employees.

6) An Initial Meeting. The initial meeting with the board of directors would cover key features of the corporation. Examples are bylaws, agreements, and the appointment of officers.

7) Register for taxes on state and federal levels. Specific states may also require corporations to register for employment taxes or industry-specific taxes.

8) Obtain Business Licenses. Corporations will need to obtain at least one license.

9) Get a business bank account. This is a vital part of forming a corporation because the business' finances have to be separated from the owners' personal finances.

How to form an LLC

Forming an LLC is similar to forming a corporation, with a few key differences. To form an LLC, entrepreneurs would need to:

• Select a state
• Name the LLC
• Choose a Registered Agent
• Filing the articles of organization
• Creating an Operating Agreement
• Obtain an EIN
• Open a business bank account

When selecting a state, entrepreneurs are presented with the option to form an LLC where they are based, or in another state to gain specific benefits of the chosen state.

Operating agreements serve to outline the ownership structure of the LLC as well as the member roles. This is not legally required by all states, but it is beneficial. This document should contain organization, management and voting, capital contributions, distributions and dissolution sections.

The takeaway

Corporations and LLCs both offer a range of benefits, but either, or neither, might not suit the needs and goals of all entrepreneurs. When selecting a business structure, entrepreneurs need to determine their wants, needs and business goals to successfully determine which structure would best suit them.