• LLC (Limited Liability Company):

  • Offers liability protection for owners (members)

  • Pass-through taxation (profits and losses are reported on owners' personal tax returns)

  • Less formalities and paperwork

  • Flexibility in ownership and management structure

• Corporation:

  • Offers liability protection for shareholders

  • Subject to more formalities, such as annual meetings and a board of directors

  • Can be taxed as a C-Corp (taxed separately from shareholders) or an S-Corp (pass-through taxation)

  • Attracts investors through stock issuance

The general steps for forming an LLC or corporation include:

1. Choose a business name: Ensure the name complies with state laws and is available for use.

2. Select a registered agent: Designate a person or entity to receive legal documents on behalf of the business.

3. File formation documents: Submit the required documents (e.g., Articles of Organization for an LLC or Articles of Incorporation for a corporation) to the state’s Secretary of State office.

4. Create an Operating Agreement or Bylaws: This internal document outlines how the business will operate, particularly for LLCs and corporations.

5. Obtain an EIN (Employer Identification Number): Register with the IRS for tax purposes.

6. Apply for necessary licenses or permits: Depending on your industry, you may need specific permits or business licenses.

• LLC: A great choice if you want liability protection, tax flexibility, and a relatively simple setup. An LLC is ideal for small business owners who want to limit personal risk while maintaining operational flexibility.

• S-Corp: Best for business owners who want the liability protection of a corporation and the tax benefits of pass-through taxation, especially if they plan to hire employees and take a reasonable salary. S-Corps are suitable for businesses that are generating profits and want to optimize tax savings.

• Sole Proprietorship: The simplest and least expensive option, ideal for solo entrepreneurs or freelancers who don’t need liability protection and want to avoid the complexity of LLCs or corporations. However, sole proprietors should be aware of their personal liability exposure.

• LLC: Offers tax flexibility. By default, an LLC is a pass-through entity, meaning the business’s income is reported on the owner’s personal tax return, avoiding corporate taxes. However, an LLC can also elect to be taxed as an S-Corp or C-Corp, depending on the business’s needs.

• S-Corp: The main tax benefit of an S-Corp is pass-through taxation, meaning profits and losses are reported on shareholders’ personal tax returns, avoiding the double taxation that occurs with a C-Corp. Additionally, S-Corp owners who are actively involved in the business can take a salary (subject to employment tax), and any remaining profits can be distributed as dividends, which are often taxed at a lower rate.

• Sole Proprietorship: A sole proprietorship is taxed as a pass-through entity, with income reported on the owner’s personal tax return. However, the owner must pay self-employment taxes (Social Security and Medicare taxes) on all business income, which can be a disadvantage compared to LLCs and S-Corps that allow for salary and distribution structures.