The success of any new business depends on its foundational structures. The stronger a foundation, the chances of success become just as higher. That is why it’s critical to have the right structure for your business so it can stand the test of tougher times and grow into something bigger and better.
LLC and C-Corp are the two most popular choices for new business. But which one will be the right fit for you? Let’s have a look at the structures shared by Bill Schantz.
1. Limited Liability Company (LLC)
Let’s start with the most popular choice for businesses: the Limited Liability Company or LLC. The LLC business structure is a hybrid model that protects the business owner’s personal assets when their business is facing financial hardships. LLC separates the owner from its business in terms of finances and legal matters.
Pros of LLC:
- LLCs offer a flexible structure, which is overseen by individual or multiple owners.
- LLCs are considered a “pass-through entity.” This allows the business owner to file all the profits and losses on their personal tax return without facing any corporate taxes.
- An LLC separates the business from the owner’s personal assets such as their home, car, personal savings, etc. This protects the owner’s personal finances in case the business faces lawsuits or bankruptcy.
Cons of LLC:
- One of the drawbacks of LLCs is that they aren’t indefinite entities. LLCs are filed by the state, and each state has its own regulations. So, if you need to move, you can’t take your business with you. You’ll have to dissolve the business and start it over according to the regulations of your state. The same is the case when a new owner is added to the business or the original one leaves.
- LLC is more rigorous compared to other business structures because it requires a lot more work on the owner’s part, especially in terms of filing forms and gathering documentation.
According to Bill Schantz, the C-Corp business structure is usually followed by big corporations. A C-corporation structure creates a business that is entirely separated from its owner(s). The company earns profits and is taxed separately from its owners or shareholder. This structure makes a company legally liable on its own.
Pros of C–Corporation:
- The C-Corp structure protects the personal assets and finances of its owners and shareholders entirely.
- C-Corps are authorized to sell their stock, which is a great benefit when the company is in need of cash flow.
- C-Corps aren’t affected when an owner or shareholder decides to leave the company.
Cons of C–Corporation:
- C-corporation business structures are more expensive to form than other types of businesses.
- C-corps are held at a higher standard of accountability. They are required to meet rigid regulations and regular reporting requirements.
- C-corps usually have to pay double in taxes. First, they need to pay taxes on their profits, and later when they are paying dividends to their shareholders.
Bill Schantz says that whichever choice you make, just make sure that it supports the vision you have for your business. With adequate planning and foundation, the chances of success for your new business can increase significantly.