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Which Legal Structure is Right for My Business?

Whether an LLC or a corporation is the right choice for you largely depends on your specific business, financial, and lifestyle goals. Here are some things to consider.

LLC S Corp C Corp Sole Proprietorship
Liability protection for the owner(s) against personal asset seizure for business debts
Liability protection for the owner(s) against personal asset seizure for business debts
Can have as many owners as wanted or needed
Strict nationality or citizenship requirements for owners
Substantial recordkeeping requirements, including filing reports annually and paying fees that may not be well suited to a small business
Perpetual existence, even if the owner leaves or passes away
Elimination of double taxation of income. Pass through by owners reporting their profits and losses on individual tax returns
Flexible and optimal for growing the business without intervention by third parties or government entities
Optimal for obtaining funding from venture capitalists and other investors
Can become a publicly traded company
Issuance of common stock to shareholders

If your question isn’t answered in our Common Questions and Answers below, call us at 1 800-651-7301 or email us at info@trademarkattorneyslosangeles.com, or fill out the contact form at the bottom of this page.

Common Questions and Answers

  • Should I form an LLC, a corporation, or a sole proprietorship?
    A sole proprietorship is best suited to small businesses that are owned and run by one person with low risk and low profits. Generally, these businesses don’t have a wide range of customers but rather a small, dedicated group. Sole proprietorships often start as hobbies that grow into a business. Because there is no separation between the owner and the business, the owner is entitled to all of the profits. However, the owner is also entitled to all of the debts and obligations and can even be held responsible for liabilities caused by employees. LLCs are perfect for most small businesses due to their simplicity, affordability, flexible taxation structure, management flexibility, and minimal recordkeeping and reporting requirements. Note that not every business can operate as an LLC, so check your state statute. For instance, the banking and insurance industries are typically prohibited from forming an LLC, while some states like California and Nevada prohibit licensed professionals like accountants, attorneys, architects, physicians, from forming an LLC.  Corporations are best suited for businesses that want to raise funding from venture capitalists and other investors. Corporations can become publicly traded companies, whereas LLCs and sole proprietorships cannot. With that said, corporations have to meet certain requirements that may not be well suited to a small, informally run business. For instance, corporations must hold annual shareholders meetings, file annual reports, and pay annual fees to the state and have onerous recordkeeping requirements. 
  • I formed a legal entity for my business. Does that mean I now own exclusive rights to my business name?
    No. To obtain exclusive rights to your business name, you must first trademark it. There’s a lot more that goes into obtaining a trademark than forming an LLC or a corporation. We focus exclusively on trademarks. For more information about registering a trademark, see our U.S. Trademark Registration Services.
  • How do I protect my company’s business name and/or logo?
    To protect your company’s brand, you must trademark it, which is what we can help you with. Click here to start your trademark now.
  • Is an LLC a trademark?
    No. An LLC is a type of legal or business structure, while a trademark is a type of intellectual property. An LLC protects personal assets from financial liability while trademarks protect the brand name and/or logo of a company, preventing the business name and/or logo from being used by another business. So, if you’ve formed an LLC or a corporation and want to protect your business name and/or logo, then you should get a trademark, which is what we can help you with. 
  • Can an LLC own a trademark?
    Yes, an LLC can own a trademark.
  • I think a corporation is the right legal structure for my business. Should I form an S Corp or a C Corp?
    Whether you should form an S Corp or a C Corp usually comes down to how you want the corporation to be treated for federal income tax purposes. S corps are pass-through taxation entities, which means that S Corps file an informational federal return (Form 1120S), but no income tax is paid at the corporate level. This means that the profits and losses of the business are “passed-through” to the business and reported on the owners’ personal tax returns. As such, any tax due is paid at the individual level by the owners. On the other hand, C Corps file a corporate tax return (Form 1120) and pay taxes at the corporate level. This means that corporate income tax is paid first at the corporate level and again at the individual level on dividends. As such, C Corps possibly face double taxation if corporate income is distributed to the owners as dividends, which are considered personal tax income. An S Corp cannot have more than 100 shareholders, meaning it can’t go public and is limited in its ability to raise capital from new investors. In contrast, a C Corp can have as many owners or shareholders as it wants or needs and can go public.
  • I want my business to eventually go public? Which legal structure should I form?
    C Corp.
  • Can I convert a sole proprietorship to an LLC?
    Yes. You can convert a sole proprietorship to an LLC. It requires you to file articles of organization with your state secretary. Also, you will have to refile your “doing business as” (DBA) to keep your company name. Lastly, you will need to obtain an employment insurance number, or EIN, from the IRS.
  • What is an operating agreement?
    An operating agreement is a binding legal document between the owners of an LLC that records each member’s ownership interest and that governs its structure, management, and daily operations
  • Is an operating agreement required for an LLC?
    An operating agreement is needed for an LLC formed in California, Delaware, Maine, Missouri, and New York.
  • Are there residency requirements to form an LLC?
    To form an LLC, owners or “members” do not have to meet any nationality or citizenship requirements.
  • Are there residency requirements to form a corporation?
    To form a corporation owners are required to be individuals or certain types of trusts, with fewer than 100 owners – all of which need to be U.S. citizens or a U.S.-based trust.
  • What is the lifespan of an LLC? What is the lifespan of a corporation?
    Unlike a corporation which may exist in perpetuity, even if the owner leaves or passes away, an LLC does not exist in perpetuity and may be dissolved if something happens to the owner.
  • How much does it cost to create an LLC? How much does it cost to create a corporation?
    Costs vary depending on the state of work and residence and whether a business owner hires an attorney but incorporating with S Corp tax classification can cost anywhere from $100 to $250, while registering as an LLC can cost anywhere from $50 to $500.
  • How does the management structure of an LLC differ from the management structure of a corporation?
    Corporations have a fixed management structure that consists of a board of directors that oversees company policies and officers who run the day-to-day business. Owners, also known as shareholders, must meet every year to elect directors and conduct other company business. LLCs don’t have this formal structure, and an LLC owner has significantly more flexibility about the way they run the business and make decisions. Additionally, LLCs encourage owners to participate in the management of the business, while corporations allow owners to be hands-off and take a salary as an employee.
  • How are LLCs taxed?
    LLCs have a flexible taxation structure in that they can be taxed as a sole proprietorship, a partnership, or a corporation. The Internal Revenue Services, or “IRS,” automatically classifies LLCs as either partnerships or sole proprietorships, depending on whether they have one owner or more than one owner, which means that LLCs do not pay any corporate taxes. Instead, income and expenses pass through to the owners’ personal tax returns, and the owners pay personal income tax on any profits.
  • How are corporations taxed?
    While some corporations, such as S corps, can avoid double taxation and receive “pass-through” tax treatment like LLCs, not all corporations are eligible. For instance, traditional C corporations are taxed twice on distributions to shareholders, once at the corporate level and once at the individual level. 
  • How do LLCs distribute profits to their owners?
    LLCs aren’t required to distribute profits equally or according to ownership percentages. For example, two people may have equal interests in an LLC but they may agree that one of them will receive a greater share of the profits because he/she contributed more money or labor in the business.
  • How do corporations distribute profits to their owners?
    Corporations must distribute profits to shareholders according to the number and types of shares they hold.

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