7 Reasons to Choose an LLC C Corp for Your Business
Are you thinking of starting a business or changing your business structure? If so, you might want to consider an LLC C corp. An LLC C corp is a type of business entity that combines the benefits of a limited liability company (LLC) and a corporation. In this article, we will explain what an LLC C corp is, how it works, and why it might be the best option for your business.
What is an LLC C Corp?
An LLC C corp is a hybrid entity that has the characteristics of both an LLC and a corporation. An LLC is a business structure that provides limited liability protection to its owners, who are called members. A corporation is a separate legal entity that can issue shares of stock and has its own tax status. A C corporation is the default type of corporation that pays taxes at the corporate level and at the shareholder level.
An LLC C corp is created by forming an LLC and then electing to be taxed as a C corporation by filing Form 8832 with the IRS. This way, the LLC retains its flexibility and simplicity, while gaining the advantages of a C corporation, such as access to capital markets, unlimited number of shareholders, and potential tax savings.
What are the Benefits of an LLC C Corp?
An LLC C corp can offer several benefits to business owners, depending on their goals and circumstances. Here are some of the main reasons to choose an LLC C corp for your business:
1. Limited Liability Protection: As an LLC, an LLC C corp provides limited liability protection to its members, meaning that they are not personally liable for the debts and obligations of the business. This can protect their personal assets from creditors, lawsuits, and other liabilities.
2. Tax Flexibility: As a C corporation, an LLC C corp can choose its own fiscal year and deduct certain expenses that are not available to other types of entities. For example, an LLC C corp can deduct salaries, bonuses, fringe benefits, and retirement plans for its employees and members. An LLC C corp can also retain earnings and reinvest them in the business without paying taxes on them until they are distributed to shareholders.
3. Access to Capital: As a corporation, an LLC C corp can raise capital by issuing shares of stock to investors. This can help the business grow and expand its operations. An LLC C corp can also attract more investors by offering different classes of stock with different rights and preferences.
4. Transferability of Ownership: As a corporation, an LLC C corp can easily transfer ownership by selling or transferring shares of stock. This can facilitate the exit strategy of the business owners or allow them to bring in new partners or shareholders.
5. Perpetual Existence: As a corporation, an LLC C corp has perpetual existence, meaning that it continues to exist even if its owners change or die. This can provide stability and continuity for the business and its customers, suppliers, and employees.
6. Professional Image: As a corporation, an LLC C corp can enhance its professional image and credibility in the market. Customers, vendors, and lenders may perceive an LLC C corp as more established and trustworthy than other types of entities.
7. Expert Export Management: As an LLC C corp, you can benefit from expert export management services that can help you expand your business internationally. Export management companies (EMCs) are specialized firms that act as intermediaries between domestic exporters and foreign buyers. They can handle all aspects of exporting, such as market research, logistics, documentation, financing, and compliance. By working with an EMC, you can save time and money, reduce risks, and increase your sales.
How to Form an LLC C Corp?
To form an LLC C corp, you need to follow these steps:
1. Choose a name for your LLC that complies with your state’s rules and regulations. You may need to include “LLC” or “Limited Liability Company” in your name or use a name that is not already taken by another business.
2. File articles of organization with your state’s secretary of state or equivalent agency. This is a document that contains basic information about your LLC, such as its name, address, purpose, duration, and members.
3. Obtain an employer identification number (EIN) from the IRS. This is a unique number that identifies your business for tax purposes.
4. File Form 8832 with the IRS to elect to be taxed as a C corporation. You need to do this within 75 days of forming your LLC or within 75 days of the beginning of the tax year in which you want the election to take effect.
5. Create an operating agreement for your LLC that outlines how your business will be run and how decisions will be made. This is not required by law but is highly recommended to avoid conflicts and disputes among members.
6. Comply with any other state and local requirements for starting and running a business, such as obtaining licenses, permits, registrations, and insurance.
What Is an LLC C Corp?
An LLC C corp is a business structure that combines the features of a limited liability company (LLC) and a C corporation. An LLC is an entity that protects its owners, called members, from being personally liable for the company’s debts or liabilities. A C corporation is a tax classification that allows a business to pay corporate income tax on its earnings, and then distribute the remaining profits to its shareholders, who pay personal income tax on them . This is known as double taxation, but it also gives the business more flexibility to reinvest its profits at a lower tax rate.
Why Choose an LLC C Corp?
Some businesses may choose to form an LLC C corp for various reasons, such as:
– To take advantage of the limited liability protection of an LLC and the ability to raise capital through issuing shares of a C corporation.
– To avoid the restrictions and requirements of an S corporation, another tax classification that allows pass-through taxation but limits the number of shareholders and their types.
– To benefit from certain tax deductions and credits that are available only to C corporations, such as the research and development credit or the domestic production activities deduction.
– To have more control over the allocation of profits and losses among the members, which can be done through an operating agreement in an LLC.
However, forming an LLC C corp also has some drawbacks, such as:
– The complexity and cost of complying with both state and federal laws and regulations for both LLCs and C corporations.
– The double taxation of profits at both the corporate and individual levels, which can reduce the net income available to the owners.
– The potential for conflicts of interest between the members and the shareholders, especially if they are not the same people or have different goals and expectations.
How to Form an LLC C Corp?
To form an LLC C corp, a business must follow these steps:
– Choose and register a unique business name with the state where it will operate.
– File the articles of organization with the state, which include information such as the name, address, purpose, duration, and management structure of the LLC.
– Obtain an employer identification number (EIN) from the IRS, which is used for tax purposes and other business activities.
– File Form 8832 with the IRS, which is used to elect the C corporation tax status for the LLC. This must be done within 75 days of forming the LLC or the beginning of the tax year.
– Create an operating agreement for the LLC, which outlines the rules and procedures for running the business, such as how profits and losses are allocated, how decisions are made, how members can join or leave, etc.
– Issue shares of stock to the shareholders, who become owners of the C corporation. The number and type of shares can vary depending on the needs and preferences of the business.
– Comply with all state and federal laws and regulations for both LLCs and C corporations, such as filing annual reports, paying taxes, keeping records, holding meetings, etc.
References:
http://corp.delaware.gov/Aug09feesch.pdf
https://www.irs.gov/pub/irs-pdf/i1120.pdf
LLC Vs. C-corp: What’s the Difference? – Forbes https://www.forbes.com/advisor/business/llc-vs-c-corp/
What Is a C Corp? – Investopedia]
https://www.investopedia.com/terms/c/c-corporation.asp
What is an LLC? Limited Liability Company Structure and … – Investopedia https://www.investopedia.com/terms/l/llc.asp
LLC vs C Corp: Everything You Need to Know – UpCounsel https://www.upcounsel.com/llc-vs-c-corp)
https://www.irs.gov/businesses/small-businesses-self-employed/limited-liability-company-llc
https://www.investopedia.com/terms/c/c-corp.asp
https://www.sba.gov/business-guide/launch-your-business/choose-your-business-structure
https://www.thebalancesmb.com/what-is-an-export-management-company-emc-1953350
