When you're running a business,
it's all-consuming.
You're focused on your customers and employees.
You might need help managing the bigger picture.
Should I form an LLC or a corporation?
When should I think about selling?
And what steps should I take?
I asked tax partner Neil Balmert at DLA Piper
some of the most common questions
I hear from business owners,
starting with the question I hear the most.
What type of entity,
corporation or LLC partnership,
makes the most sense for their business?
I get that question a lot from startup companies.
So, the liability protection of an LLC
and a corporation is the same under state law.
So, primarily, the choice of entity
is driven by tax purposes.
A limited liability company
or partnership is generally a flow-through entity,
and a corporation is generally
not a flow-through entity.
So, what that means is that if
you have startup losses for the founders or investors,
and you have a flow-through entity,
those losses can flow through to the investors
and offer some tax savings on the front end.
So, if the company will generate losses,
and the initial investors are individuals,
we often see a flow-through entity
like a limited liability company.
Conversely,
if we have a venture capital investor
or a more sophisticated investor,
they might prefer a corporation.
So, oftentimes,
we'll see a company start out with a flow-through
like a limited liability company,
run that until they do their first outside financing,
and then flip that over
to a corporation at the time of
bringing in venture capital money.
If you have questions about
what's best for your business, give us a call.
We know your time is precious. Let's make it count.