When Should You Choose a C Corporation Over an LLC?

With a wide variety of choices — sole proprietorship, partnership, limited liability company (LLC), S Corporation and C Corporation — business owners must weigh their goals and future interests when choosing a business entity.

Many business owners opt for an LLC because of the flexibility this structure affords in terms of management and taxation. However, there are certain circumstances where you might want to choose a C Corporation over an LLC, including:

Attracting investors — If you will be seeking venture capital, a C Corp is more attractive to these types of investors than an LLC, primarily because of the limitations LLCs have on liquidity and issuing stock..

Going public — If you foresee a public offering in your company’s future, it is best to structure your company as a C Corporation from the beginning in order to accommodate this. Because LLCs are governed differently in different states, there is no consistent treatment for setting up an LLC for a public offering without changing it to a corporation. LLCs are rarely publicly traded; if you are working toward an IPO, it’s best to do so using the corporate form.

Owner and employee benefits — Shareholders in corporations may also serve as employees. As a corporation, salaries can be deducted from corporate taxes rather than paying shareholder dividends. Shareholder employees are also eligible for other benefits like health insurance, which is also deductible for the corporation and does not count as taxable income for the employee. If your company is an LLC, these options are very limited. Corporations can also issue stock — something LLCs cannot do — allowing them to incentivize and retain key employees with stock option benefits.

Once you have set up your corporation or LLC with the help of a qualified Florida business attorney, you need to prepare the proper documentation in order to obtain the limited liability protection both structures provide.

If your business is operating as a corporation, you will need to draft bylaws that detail how the corporation will operate. You also need to set up a corporate minute book to record your shareholder and director meetings, as well as a file for your bylaws, articles of incorporation, shareholder information and resolutions.

If your business is operating as an LLC, you will need to create an operating agreement setting out the rules that govern issues such as partnership arrangements, voting powers, profit sharing, management structure, and company dissolution. Your business attorney can help you get all these things in order.