Should You Form a Corporation or an LLC

In Newsletter Content by brandon

Should You Form a Corporation or an LLC?

I am frequently asked whether it’s better to form a Corporation or a Limited Liability Company. When asked this question I typically respond in true lawyerly fashion with, “It depends.”  When you are operating a business without a legal entity, you are referred to as a “sole proprietorship.”  A sole proprietorship is less complicated: no separate tax filing is required, there are no corporate formalities to follow, and there’s no annual franchise tax.  However, as a sole proprietorship you are also personally liable for your business’s debts and liabilities.  In other words, if you lose a lawsuit filed against your sole proprietorship business, the resulting judgment will be collected from you as an individual. There is no legal separation between you and your business.

Incorporating your business provides a “liability shield,” offering protection to the business owner personally.  The liability shield is the same whether you form a corporation or an LLC.  In these two cases if your company is sued and loses the lawsuit, the judgment would generally be collectible only against the business and not you individually.

A company’s liability shield is commonly referred to as its “corporate veil.”   In short, a corporate veil separates you, the individual, from the business in terms of liabilities.

What do you need to form a corporation or an LLC?

A name for your business. Your desired name must not be in use by another business.

Names of the shareholders, officers and directors of your entity. You will need to identify the shareholders (i.e the owners) and their respective percentage of ownership, officers (President/ Manager, Treasurer and Secretary) and, if a corporation, those who will be part of your board of directors. The same person can be a shareholder, officer and director of your LLC or Corporation.

A physical address for your business. Please note the physical address cannot be a P.O. Box.

Social security number. You will be required to provide your social security number in order to obtain your tax identification number for the Internal Revenue Service.

What is the cost to form a corporation or an LLC?

For clients of The Insurance Store, discounted rates are offered. For Limited Liability Companies and Corporations with no rush and only one shareholder or two shareholders where the shareholders are husband and wife, the cost is $1,275 (LLC) and $1,425 (Corporation). Please note that The Insurance Store is not paid any fee, commission, or provided anything of value in exchange for the above discount pricing or referral to Lockhart Law Firm, APC.

Please feel free to contact our office with any questions you may have regarding the incorporation of your business at Lockhart Law Firm, APC (951) 461-8878.

(The foregoing does not constitute legal advice.   If you require legal advice as to your specific situation, please consult with an attorney.)