I’ve been reading LLC or Corporation?: How to Choose the Right Form For Your Business by Nolo Press, which writes a lot of do-it-yourself legal books aimed for the public. Some of the little details just make my head spin, but here are the main benefits of forming a corporation or limited liability company (LLC) for an individual:
1) More job opportunities. Many companies won’t hire an independent contractor unless they are an LLC or corporation. This is because they are afraid of the IRS classifying you as an employee later, and then charging them possibly years of back employment taxes.
2) Limited liability for business debts. As a sole proprietor, if your business goes under you are personally responsible for all the debts. That means your house, your car, and everything else you own can be taken away to pay off those debts. This doesn’t protect you from everything all the time, though.
3) Save on taxes. With corporations and LLCs, there are strategies to minimize your income tax liability. Depending on your business type and expenses, you could save a significant amount of money. However, you must balance these with the additional paperwork and formation fees involved.
If you are trying to build a business that you could potentially grow and sell, then there are other things to consider. This is just a general overview of the benefits I’m seeking, I’ll go more into the similarities and differences of limited liability and tax-minimization for LLCs and Corporations (both S-Corps and C-Corps) to help me decide which one to form.