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LLC vs. Corporation: Which Is the Right Choice for Your Business?

At McClure McClure & Davis, we know deciding what type of legal entity a new business will be is an important decision. Entities such as a limited liability company (LLC) or a corporation are popular ways to shield the personal assets of business owners from the company’s debts and liabilities. To decide between an LLC or a corporation, business owners need to consider how these entities are owned, managed, and taxed.

Limited Liability Company (LLC)
The owners of an LLC are called members. An LLC may have one or several members. Each member owns a certain percentage of the company, which is sometimes called the member’s interest. The members may run the business themselves or hire a manager to operate it on their behalf. An LLC is required to have an operating agreement. That document sets forth:

  • How to handle daily operations
  • How profits are distributed
  • If member interests may be transferred

Due to the critical nature of the operating agreement, it’s essential to receive the assistance of Indianapolis business lawyers to write the document. Income from an LLC passes through to the members. Those owners are responsible for reporting LLC income on their personal tax returns.

Corporation
Often, a corporation has shareholders who own company stock and share ownership of the corporation. However, a corporation must have a board of directors who bear ultimate responsibility for the success of the organization. A corporation also has officers to handle day-to-day operations.

A corporate entity can be formed as a C corporation or an S corporation. A C corporation pays corporate taxes on its income. Then the shareholders have pay tax on the dividends they’ve received from the corporation. Profits and losses of an S corporation pass through to the owners to be reported on their individual tax returns.

McClure McClure & Davis can help business people choose the right entity for their circumstances. Also, the attorneys can draft documents that have to be filed with the state to create an LLC or a corporation. Having Indianapolis business lawyers handle your documents ensures they are created properly and protect your interests.

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