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Required: You are about to open up a business and you need to determine which entity type you should select for your business
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Answer #1

Single-member LLC

Advantages of a single-member LLC include:

  • Liability protection: So long as owners protect the corporate veil, they won’t be held accountable for the liabilities of the business.
  • Passing on ownership: Because the LLC exists as a separate entity, it’s easy to give ownership to another individual.
  • Flexibility with taxation: Owners can elect pass-through taxation (using the personal tax return), or select corporate tax treatment.
  • Easy to expand ownership: You can change from a single-member LLC to a multi-member LLC by filing an amendment with your respective state.

Disadvantages of single-member LLCs include:

  • Complex formation: You’ll need extensive paperwork to form an LLC, because you’re creating a separate entity.
  • Necessary compliance: You’re required to complete various compliance forms to remain in good standing. You’ll also need to make sure you protect the corporate veil to keep your liability protection intact.

C Corporation?                           

C corporations have distinct advantages, such as:

  • Limited liability: If corporate formalities are followed, shareholders will not be personally liable for the debts and obligations of the C corporation beyond their initial investment.
  • Attracts investors: If you want to have several shareholders or attract outside investment, C corporations are your ideal structure.
  • Going public: If going public on a stock exchange is your ultimate exit strategy, a C corporation is your preferred route.

What Are the Downfalls of C Corporations?

On the flipside, here are some disadvantages of C corporations:

  • Double taxation: C corporations are subject to double taxation, once at the corporate level and once at the individual shareholder level, making it a heavily taxed entity.
  • Strict corporate formalities: Among other requirements, C corporations must have annual directors meetings, annual shareholders meetings, maintain corporate minutes and maintain a separate bank account.
  • Costly and tedious to set up: You have to file forms with your state and shell over a few hundred dollars to get started.
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