Incorporation / LLC’s
What are the advantages to a corporation?
The primary motivation in incorporating a business is to protect your personal assets and avoid permitting someone to chase you personally for a business related debt, loss, accident, lawsuit or the like. There are also additional benefits to incorporation which may permit the payment of many expenses from the gross receipts of your business, as opposed to from your net profit or take-home pay. You should consult with both an attorney and an accountant to determine the feasibility of incorporating your business.
How do I choose between forming a corporation or limited liability company (LLC)?
The primary legal difference between a corporation and an LLC is that the shareholders of a corporation can be held responsible for the debts of a company if they fail to follow corporate formalities, while the members of an LLC cannot have personal liability imposed on them for the business’ failure to comply with such formalities. Keep in mind, however, that there is a different tax treatment for the two entities. You pay taxes on the gross sales of an LLC while you only pay taxes on the net profit, if any, of a corporation. Keep in mind that there is an $800 minimum tax imposed by the State of California for either such business form simply to continue to operate for that calendar year, regardless of gross sales or profit.
The information contained herein is general information about the law only. The law is subject to change. If you have a specific legal question and want your question(s) answered, consult with an attorney.