Decision: Should I create an LLC or a Corp?

04 Aug 2022

This seems to be a pretty basic question that anyone wanting to open a business faces. There are plenty of resources available on the Web for arriving at a decision. And the correct answer is … it depends on your situation.

For my case, let me start with my criteria:

1. I want to try some hobby type business ideas - publish a game, create a website, do part-time gigs (e.g., Uber, Doordash), list a car on Turo, etc.

2. I want to have a legal entity tied to business accounts, to keep them separate from personal accounts.

3. I want to avoid any type of personal liability due to any business lawsuits.

4. I don’t expect to take Venture Funding for this entity.

5. I don’t expect the entity to make a lot of money, if any.

I consulted these sources for information:

• Compare Business Structures - LLC vs. Corporation, S Corporation and C Corporation | LegalZoom

• Stripe Atlas: Guide to LLCs vs C Corporations

• Ask HN: Starting Your Own LLC? | Hacker News (ycombinator.com)

I collected these facts:

Pros of LLC:

• LLC provides similar Legal protections as a Corporation, but lets you run your company as a small business.

• LLC allows pass-through treatment of income taxes, so tax filing is simpler.

• Corporations have double-taxation - Corporate Tax plus Individual Income Tax.

• Corporations require more overhead, like issuing shares, having a Board of Directors, etc.

• A loss earned by an LLC may generally be used to offset income of the owners during the same tax year, for example, income from employment.

• An LLC can always convert to a C-Corp later - this is what Facebook did.

Cons of LLC:

• LLCs cannot go public.

• LLCs are not recognized globally.

• Investors prefer Corporations.

I arrived at the following conclusion: Create an LLC, not C-Corp.