How to choose between an LLC and a Corporation

Currently, most people will recommend you have an LLC for your business.  There are a number of things to consider before making this decision.  We form LLCs and Corporations for our clients in all 50 States, and sometimes the annual report fees will be cheaper for a corporation than an LLC.  Take Delaware for instance.  The Delaware corporation has an annual report fee (Franchise tax) of $100.00 vs an LLC having a $200.00 annual report fee.  States like Missouri don’t have an annual report for an LLC, but do for a corporation.  Or take Massachusetts.  A lot of people look initially at the $500.00 annual report fee for LLCs and see that a corporation only has a $125.00 fee… BUT… the MA dept of revenue charges corporations a minimum $425.00 return fee, even if you didn’t make a dime, whereas a MA LLC can file a zero return and not pay the minimum… 

Another big consideration is the classification of your LLC.  Let’s say you started an LLC in MA and your CPA told you that you would save 15% on your distributions by paying yourself a “normal” wage and taking some money as a distribution to avoid the self employment tax for social security and medicare…  Well if you make yourself an S corp in MA, you’ll then have to pay the $425.00 minimum payment that corps have, AND the $500.00 annual report fee.  New Jersey works the same way.  The annual report for LLCs in New Jersey will cost you $125.00 per member of an LLC.  If you have a corporation, it will cost $500.00 regardless of your income. 

How about California?  California S corporations can file for an exemption from the $800.00 minimum franchise tax payment for the first year, while LLCs cannot file for the first year exemption.

A lot of people say they want an S corporation, but you can declare your LLC to have S corporation status with the IRS. 

The differences go on and on.  We recommend seeking professional help when choosing between an LLC or Corporation.  One of the firms we like is:

www.northwestregisteredagent.com/incorporation-service.html

Here's another great incorporation service.