Most new business owners form an LLC because it’s easy to understand and obtain. They’ve also seen other businesses use their LLC designation as part of their branding strategy. “Ace Plumbing LLC” looks more official than “Ace Plumbing”, but how many times have you seen “Ace Plumbing C Corp”? The answer is likely, never, but organizing your business as an LLC isn’t necessarily the best fit for your business. If you’ve never considered the C Corporation, here are a few facts to consider about this designation:
Because of a new law recently passed by Congress, crowdfunding will soon be a viable option for entrepreneurs and small business owners. Crowdfunding allows for numerous small investors to capitalize a company instead of one or two venture injections. Although the SEC hasn’t released the guidelines yet, it’s likely that only C Corporations will be able to take advantage of crowdfunding.
Data shows that businesses formed by immigrants get most of their funding from family and friends in their native country. In most cases, C corporations are the best way to officially receive foreign funding. S corporations, for example, do not allow foreign investors.
Remember that issuing stock isn’t just for the Wall Street. You, as the owner of a company can issue shares of your company to others in exchange for money or service. You can also issue different classes of stock that come with various rights. Your class A shares may come with voting rights but your class B shares do not. C corporations allow for different classes of stock where other types of structures do not.
If you formed an LLC, you’re paying self-employment taxes to cover social security and Medicare obligations and you’re paying the taxes based on all of your net earnings coming from your business. S and C corporations are currently different. With these two structures you pay those taxes only on the earnings you receive. (Or course your situation may be different depending on individual variables.)
Don’t assume that forming an LLC is the best legal structure for your business. Your business may better fit in to a C Corporation. The best way to find out is to speak to an expert in business organization. A business registration service, attorney, or accountant can you help you decide which is best for you.