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  1. #1

    Default Corp or LLC

    My question involves business law in the state of: Illinois

    Hello everyone,

    I am starting a technology company. It will be a one-man operation (only me). I was wondering what would be the best route to take since I lack business knowledge. Corporation or LLC?

    I am under 30 years old and am single (info provided for tax purposes). There is no physical address for the business.

  2. #2
    Join Date
    Jul 2007
    Location
    Florida
    Posts
    2,344

    Default Re: Corp or LLC

    For tax purposed the LLC gives you the greatest flexibility. You can file a Schedule C with your personal return, or you can choose to be taxed as a corporateion and then elect subchapter S status. There are good strategies to save tax money going that route. A corporation is somewhat more complicated to administer properly as you must document your annual shareholder meetings, actions of the board of directors, etc. in order to truly have it be a separate entity. Both offer limited liability but a lawyer could tell you if the LLC suffices in that regard for the kind of business you'll be doing. All else being equal, I would personally always opt for the LLC for the tax flexibility and the simplicity of administration.

  3. #3

    Default Re: Corp or LLC

    thanks...

    what about a Sole Proprietorship. I have been reading up a bit about that and it kinda makes sense in this situation.

  4. #4
    Join Date
    Jun 2009
    Location
    California
    Posts
    666

    Default Re: Corp or LLC

    A lot really depends on what your business will be, how you intend to conduct it, and what your legal liabilities will be. "Technology company" is not a very definitive term, but a one-person operation says it is a very small "technology company." If you feel you really need a legal structure, an LLC would be the way to go. However, for a one person company engaged in legal activities, I really can't see a reason to go to the (albeit, relatively small) expense in setting one up.

    I'd simply get a DBA, business license and whatever else might be required in your locality, if anything, and start doing business (yes, that's a sole proprietorship). I don't know about your situation, but most people now looking to start a one-person company are doing it because they are unemployed, can't find a job, and have an idea that they think might work. If that fits, make the idea work first; then, be concerned with a more formal business structure.

  5. #5
    Join Date
    Mar 2009
    Location
    Key West, FL
    Posts
    2,350

    Default Re: Corp or LLC

    You need to review the possible liabilities of the business. Even something that seems like it can't have much liability can still be sued. I would never do a sole proprietorship if there is any possibility of liability, and even then something can come out of left field. Also, changing the form of a business while it is going can have unexpected consequences.

    There may come a time also when the business is successful and you need to expand. You might need to raise money, offer stock to employees, etc. I have seen so many LLC disasters that I never recommend that form. I would set up a standard corporation and take the subchapter s option until you get so big that you outgrow that.

    A subchapter s corporation can only have one class of stock and limited numbers of shareholders.

  6. #6
    Join Date
    Dec 2009
    Posts
    2

    Default Re: Corp or LLC

    Can't believe some of the replies on here!

    Something that often gets missed due to the recent popularity of the LLC (a relatively new entity choice) is that corporate tax rates may be lower than your marginal income tax rates if you don't expet the entity to make more than $75,000 per year. The drawback is that it can be difficult (and expensive from a tax point of view) to convert the corporation to an LLC down the road in the event the venture becomes more profitable.

    On balance, an LLC offers the most flexibility from a choice of entity perspective and organizational perspective. You can avoid double taxation (no entity level taxation, as in C corps) and easily convert to a C corp down the road if desired. In addition, you get all the benefits of limited liablity, without the arcane formalities of operating in the corporate form (most LLC Acts allow members the freedom to agree on almost any organizational terms they desire through preparation of the operating agreement).

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