Often times we’re confused between these terms: LLC and corporation.
What’s the difference? Which was better for my company? What’s the difference between the two? Do they protect me?
This is a great question. Basically, an LLC and a corporation from a legal standpoint are very similar. An LLC is a Limited Liability Company. A corporation is a company that limits your liability. The idea is you’re trying to put certain assets into certain buckets. Cover them with what we call the corporate veil. Whatever’s happening inside that business stays inside that business and protects your personal assets.
From a legal standpoint, an LLC and a corporation are very similar. We always like to have a really good CPA give us their opinion about which option has the best tax benefit. A corporation, LLC, s-corp, or a c-corp and so we often just go right back to the person and say which one would you prefer? Then which one with the CPA prefer? There are also some implications about certain types of professional corporations. For example, attorneys, architects, and contractors cannot be LLC’s. They must be corporations. A chiropractor is another one of those that needs to be a corporation.
So that’s how the decision gets made; then there’s the next question.
Do they really protect me?
Yes, they do.
I have insurance. Yeah, that’s great but what if your insurance policy doesn’t cover the thing that happens. What if the limit is not where it needs to be? Why not have the added level of protection? One of the reasons people choose not to use an LLC or a corporation is because there’s an annual fee that goes with it. But considering what it actually does – and it’s not perfect, it doesn’t protect everything, it’s good. We say “don’t let the perfect be the enemy of the good”. Most companies it just brings the level of professionalism in dealing with the corporation. We don’t say that. But all of us think it.
At the end of the day, either one will protect your personal assets just in case something happens within your business.
You’re working really hard to build everything. Why not build every wall or barrier that you possibly can to protect it.