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LLC or Inc? Limited Liability Company or Incorporation? When deciding to start our own business, we as entrepreneurs come to a crossroads. We’ve already spent hours, days, months, maybe even years thinking about our business. We’ve thought about the brand we want to develop. We’ve dreamt about the values we want encultured in our business. We’ve planned for the value we want to create. Like a golden egg, our business is ready to hatch. But where will our wealth be safest and put to the most leveraged use? What legal formation will protect our most valuable asset? It’s our baby, and we want to clothe it right.

Enough with the imagery, let’s talk about the real, critical details of the decision we’re about to make. Taxes, liability, privacy, flexibility, ownership, control, simplicity, growth, image, and reputation all depend on how we form our business. This is no decision to take lightly. Whether incorporating or starting an LLC formation, we have several crucial things to think about to start out on the right path.

The 5 Critical Factors You as an Entrepreneur Need to Decide About Your Own Business Before Choosing Between an LLC Formation or Incorporating

1) Exit Strategy

Your business is an investment. When investing, you should always know your exit strategy. What’s your end goal? Are you looking to keep this business and pass it on to loved ones at some point in the future? Do you intend to sell it? Is it your ambition to offer this business publicly as an IPO? Do you want to keep your options open? Having thought through your primary goal and other options clearly will help make decisions about incorporating and LLC formation much easier.

2) Business Location

Location, location, location. Crucial in many businesses. Maybe this sounds obvious, but don’t take location for granted. Maybe you know where you plan to headquarter your business, but will you be shipping anything? Where will you ship from? Where will you warehouse your stock? Will you have multiple offices? Do you plan to own that property or lease? Will it be shared or exclusive? Don’t assume that where you personally work should be your primary business address. And certainly don’t assume that your home state is the place you should be incorporating or starting your business as an LLC formation.

3) Growth and Expansion

What’s your long-term business plan? How will you grow? Will you be seeking out investors? Will you want the business to hold a lot of cash? How large do you want to grow? How many employees? How many potential owners? Will you consider acquiring other businesses? Your method of Incorporating or LLC formation depend on these questions. Even if you plan to only hire yourself, think carefully about how you intend to grow your business.

4) Owners, Investors, and Control

As we mentioned above, entrepreneurs need to think about who will own the business. Will ownership be shared with investors? Will owners also be managers or workers? How important is privacy to the owners? How much control do you want owners to have over the day-to-day operations? Absolute? None? LLC formations and corporations provide different avenues for dealing with these issues.

5) Product

Last, but not least, you need to think long-term about product. Of course, as entrepreneurs, we think about product all the time. But don’t just think about the products you had planned. Think about potential changes in the market or your growth plans and how that could change your product in the future. Think about brand and how this effects your product. Will you only deal via one method, i.e. tangible products, service, or digital products? Do you want to stay open to changing this? How do shipping, partnerships, or outsourcing play a role in your product plans? How much product will you want to store? How risky is your product (i.e. potentially dangerous equipment, risky services, etc.)? These questions should not be too quickly brushed over when considering your decisions about incorporating or LLC formation.

We all want to exercise good financial I.Q., to minimize taxes, to protect our assets, and insure the stability and growth of our business. Considering the above 5 issues make a world of difference in decisions about incorporating or LLC formation. And they even effect what state or country is best to form our business in.

Not meaning to complicate matters, but just to clarify a few things:
Incorporating means forming a C-Corporation. If you and any other owners choose, you can have the corporation designated as an S-Corporation, a “pass-through” tax entity. Forming a Limited Liability Company (LLC formation) is not technically incorporating. In the U.S., some states, like Nevada and Delaware, are very favorable to LLC formations. Other states are not so favorable. An LLC owner can elect to be taxed in 3 or 4 ways: Individual or Partnership (depending on if there are 1 or more than 1 members), C-corporation, or S-corporation. This makes an LLC formation quite flexible and able to adjust to the growth of the business by imitating incorporation. There are some differences, however, for example in the way ownership and stocks are handled.

Thanks for reading about the 5 critical factors every entrepreneur needs to consider when deciding whether incorporating or LLC formation is right for their own business!

Read about the 5 important issues to consider when incorporating your own business here!

(While the above is intended to help educate you to make an informed decision and written to provide as accurate and valuable information as possible, please do not consider any of the above as professional or legal advice. Always be sure to get advice from authorized professionals whom you know to be trustworthy.)