Incorporation

What Type of company I should go for? LLC or INC?

When you register a company in the United States, you can register it as a LLC or Corporation. Owners of a Corporation is called Shareholders. When it is LLC, the owners are called “Members”. There are two kinds of Corporation you can register in USA. C-Corporation and S-Corporation. When any shareholders or member of the company is non US Citizens, then your company becomes a C-Corporation. A S-Corporation can be formed only when all its members are US Citizens. There is no restriction on the number of shareholders or members for a US Corporation or LLC. Also there is no restriction on which country the owner belong to. A person can hold shares in or own multiple companies in the United States. However your home country may have any such restrictions and you can check with your local CA.

Corporation

A Corporation is a separate legal entity that can shield the owners from personal liability and company debt. As a separate entity, it can buy real estate, enter into contracts, sue and be sued completely separately from its owners. Also, money can be raised easier via the sale of stock; its ownership can be transferred via the transfer of stock. A Corporation can change hands and hence can live long regardless of ownership, unlike LLC. For Corporation you have to report income separately.

Limited Liability Company

A Limited Liability Company can be best described as a hybrid between a corporation and a partnership. It is easy to manage and is a “pass-through” entity from the taxation point. With LLC profits and losses are added to the owner(s) personal tax returns, like a Sole Proprietorship/Partnership, with the liability protection of a Corporation. It’s a relatively new form of business created in 1977 in Wyoming and now recognized in all 50 States and D.C.

Like a corporation, it is a separate legal entity; unlike a corporation, there is no stock and there are fewer formalities. The owners of an LLC are called “Members” instead of “Shareholders”. So in essence, it’s a like a corporation, with less complicated taxation and stock formalities. The heart of a Limited Liability Company is known as the “Operating Agreement”. This document sets the rules for operating the company and can be modified as the business grows and changes.

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What is best for me?

Now the question is whether you go for C-Corp or LLC. It depends on your requirements. LLC is a ‘pass-through’ tax entity. Meaning income form LLC will pass through to the owners in the same manner it does with a sole proprietorship or general partnership. However LLCs can also considered be treated as a C-Corp from the tax stand point. On the other hand C-Corp are taxed as separate entities. They are also subject to ‘double taxation’, if the profits are distributed to the owners as dividends. C-corp are often the preferred incorporation choice of developing business since owners can hold different types of stock interests. But for small businesses LLC is preferred. As you move on, you may be able to simply convert your LLC’s assets into a new C-Corp.

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