LLC or Corporation: What Is Best for Your Startup?

The most significant difference between an LLC and a Corporation is in a) structure and b) governance.

Generally speaking, the way a Corporation is structured and run is well-defined, with little room for variance. An LLC is structured and run by contract between the LLC and its owners (the Members), which makes it very fluid and adaptable.

A Corporation is very rigid – the way in which it is set up and run is defined by law and practice, so there is little room to change things. The benefit of a rigid structure is predictability – everyone involved (investors, lenders, advisors, employees etc.) knows exactly how a Corporation works. This rigid Corporate structure is also highly scalable.

An LLC, however, is a much newer type of entity, and it is designed to be very flexible. The state laws and rules that define LLCs are typically very broad – and purposefully so to allow for variation.

The LLC can be structured, governed and taxed exactly like a Corporation, but can be set up for the Members (owners) to run the LLC directly, without a board. The roles can be defined by contract (Operating Agreement) between the LLC and its Members.

The obvious benefit is that an LLC can be tailored to meet the exact needs of a specific business. There is however, a drawback: Since the baseline laws are broad, the governing documents must be very well done to avoid nasty surprises.

The most important document in an LLC’s toolbox is the Operating Agreement – which is the contract that defines how the company is run.

If you are interested in more detail related to your situation it is best to speak with an attorney.

Andrei Tsygankov is the Co-Founder and COO of SmartUp® and a partner at Founders Legal (Bekiares Eliezer LLP). As an attorney, Andrei specializes in corporate, commercial, trademark, and international business matters.

andrei

Source: Smartup Legal