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C-Corp. v. LLC?

Discussion in 'Business & Tax Advice' started by schrute, Mar 6, 2011.

  1. schrute

    schrute Regular Member

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    Which is better? How does a C-Corp protect me from more liability than an LLC?
     
  2. Jayemdae

    Jayemdae Newbie

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    They both offer the same liability protection. The difference really depends on what you want to do. If you're just looking for liability protection (and not soliciting investors), then an LLC will be far easier to manage. C-Corps have strict requirements for annual meetings and various other aspects. LLCs don't have those requirements, but are primarily limited in how you can get investors. An LLC is technically a partnership (with limited liability), so any future investor would have to become a partner.

    Keep in mind that the liability protection offered by either type of company doesn't protect against intentional acts or trying to defraud while hiding behind the liability protection. It's called "piercing the corporate veil" which you can Google. Just food for thought. :)

    HTH
     
  3. schrute

    schrute Regular Member

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    I am looking for limited liability, I don't like a C-corp since its so bulky to operate. However, an LLC just seems like it doesn't have enough protection. Can an LLC hide behind the "corporate veil"?

    I just want to run a website with some AdSense on it + merchandise. Some CPA offers, etc. Although I would like the same company to be able to equity investment (possibly angel investing).
     
  4. Jayemdae

    Jayemdae Newbie

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    An LLC offers EXACTLY the same liability protection as a C-Corp. The main difference for you (when talking about investors) is that with a C-Corp you can sell shares, but with an LLC you'll have to sell a partnership stake to receive outside investors. Of course the partnership share can be very small, but they'll technically be partners with you. Somewhat subtle difference, but it may matter to you. Based on what you've said, it sounds like an LLC is the right choice for you.
     
  5. hardybents

    hardybents Regular Member

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    Go with an s Corp. All profit flows through to you with same protection as c
     
  6. schrute

    schrute Regular Member

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    I was thinking about an S-Corp. Although I don't know if I need a share structure.
     
  7. schrute

    schrute Regular Member

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    Also, do you think its better to form in Delaware or Nevada? I hear Nevada is becoming very attractive.
     
  8. coderjeff

    coderjeff Junior Member

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    Jayemdae is right. The liability protection is the same, and LLCs are much easier to setup and have less ongoing paperwork than a C-Corp. If you expect to have a few investors, you might consider an S-Corp.

    What protection do you believe a C-Corp offers that you can't get from an LLC?

    Just be sure your LLC or Corporation has its own checkbook and don't mix personal and business funds. You won't be personally responsible for company debt or if your business is sued. You can't protect yourself from personal liability from criminal actions or intentional fraud that you commit using an LLC or a Corporation.

    I've used C-Corps, S-Corps and quite a few LLCs. I still have one C-Corp (from 1979) that I converted into an S-Corp and a number of LLCs. For LLCs, I do the paperwork myself and pay the state filing fee and have never had any problems.
     
  9. schrute

    schrute Regular Member

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    Cool. Thanks, this insight really helped. I think I'll do an LLC. I don't plan on alot of investors and I can always convert it right? Paperwork is something I want least.

    Now with a business bank account, how can I use that to pay my employees (set up payroll). Do I need a trust account? How does that aspect get set up? What can I buy with a business account that I couldn't with a personal one? Outside of my partners, who would stop me from buying a home with a business account?
     
  10. coderjeff

    coderjeff Junior Member

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    Depends on your purpose. Are you looking for limited liability, lower state taxes, or privacy? Do you plan to have investors? If all you need is limited liability you can file in your own state and save money and the hassles of having someone act as your registered agent.
     
  11. schrute

    schrute Regular Member

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    I don't plan on having investors. If I do, privately, I think it would be few and far between, something I could manage. I'm looking for lower state taxes, as far as I know, Nevada has no taxes on LLCs. I would also like privacy.

    The yearly filings in my state are $800 for the franchise board. Okay, it's not much when you're making $400,000 / year but when you're starting off. $800 plus heavy taxes is kinda alot.

    Although I really don't like paperwork, so a registered agent also bothers me but I guess I'll have to decide between those: lower taxes, privacy, investor structure, etc.
     
  12. RandomMarketer

    RandomMarketer Newbie

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    I just wanted to chime in my quick thanks for this information. I've been struggling with legal information about LLC vs C-Corp for some time, which has just resulted in no action at all. When I've talked to lawyers, they would typically push me toward one for their own benefit, instead of what was best for me. I've been leaning towards LLC, however, and I think now I just need to get up and get it done.
     
  13. Michaelh76

    Michaelh76 Newbie

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    The laws vary by States - The majority of Corporations have used Delaware
    based on Liability laws.

    Now having Corporations in a Ste you do not personally live in require you to have registered agent and pay fees.

    If your trying to conceal ownership then Nevada has its advantages. If you are looking for investors you don't want to hide the ownership.

    It is very simple to make Corporations - simply go to the States websites, download the applications and fill them out.

    Issuing shares and the rest is a 1 time thing and you just select no par value to make life easy.

    Then you just have annual reports that take 10 minutes to complete.

    The biggest difference on the Corporation is the income Tax Ramifications.

    A C Corp is a true separate entity - it pays its own taxes. You share profit with Shareholders by giving a dividend. The C Corp pays taxes on the income before it gives the dividend and the the shareholder pays taxes on the dividend as income. So your profit is taxed twice!
     
  14. coderjeff

    coderjeff Junior Member

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    Just write payroll checks from your business bank account. A program such as Quickbooks will be useful.

    No one will stop you. However, if you write checks from a business account (LLC or Corporation) to pay your personal expenses it will show that you are not treating the business as its own entity. That can eliminate the whole purpose of setting up an LLC to limit your liability. Write a check from your business to yourself and deposit it in your personal account, then pay personal bills from there.

    In my state an LLC costs something like $70 for the initial filing, then $30 per year to keep it active. An LLC or S-Corp pays no income taxes itself. The income is reported by the LLC members or shareholders on their own tax return.

    One advantage of an LLC is that it can be a member (partner) of another LLC. When I do a JV with someone else (a real JV where we both invest), I form a new LLC for that venture and then my main LLC becomes a member of the new LLC. That limits the liability of my company from the new JV and allows me to have an 'investor' in a project without having them become part of everything I do.
     
  15. schrute

    schrute Regular Member

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    Where is that?

    I mean in my state, you have to pay the franchise tax board and its $800 a year. Ridiculous! Of course, LLC/Corps have to pay state and federal taxes. But I heard in Nevada, they are exempt from paying state tax.