If you’ve ever considered starting a business, then you know that selecting the type of business entity can be very confusing. And asking when should you incorporate your startup. When you’re new to entrepreneurship, it can feel overwhelming as you research and try to understand entity structures. And while there are many entity options, it usually comes down to LLC vs. Inc. (Corporation). So, the burning question is… What is the difference between an LLC and a corporation?
Let’s take a moment to explore the differences between LLC and corporation. And the benefits you can get from each structure, including the disadvantages and advantages.
When asking yourself when should you incorporate your startup selecting the correct business entity is your giant first step to becoming a business owner. It’s the bedrock on which you’ll build your start-up–your platform for growth.
Your choice between LLC or corporation will help you set the stage for how your business functions on a daily basis, as well as how it expands over time. As you research your decision, start thinking about the protection you want and the advantages you need to be successful.
Forming an LLC
An LLC is formed by one or more business people. The owners (otherwise known as “members)”, file Articles of Organization with a state. Once that’s complete, they put together a contract called an Operating Agreement to use in managing the day-to-day activities and decide on each member’s percentage share of ownership, roles and responsibilities. Operating Agreements are required for LLCs but they’re strongly suggested
Forming a Corporation
A corporation is formed (or incorporated) by filing corporate organization documents called Articles of Incorporation in the state where the corporation is located. Additionally, the corporation must create a Board of Directors to oversee the business. The board is then required to agree on bylaws. The same thing as an operating agreement.
Choose which and when should you incorporate your startup
It can be difficult to decide the best entity for your business–especially when the differences could spell success or disaster for your business.
Doing your research ahead of time can definitely help you make an educated decision, but it’s important to also seek expert advice so you start your business on the right path to success.
Incorporating is the most powerful thing you can do to legitimize your startup.
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