Let’s assume that you’ve concluded it would be advantageous to operate your small business through an entity that limits the personal liability of all the owners — even if following this strategy involves a bit more paperwork, complexity and possible expense. You have two main choices — either the tried and true corporation or the new and streamlined limited liability company (LLC). Which is better? There’s no answer to this question that applies to every business.
For the majority of small businesses, the relative simplicity and flexibility of the LLC makes it the better choice. This is especially true if your business will hold property, such as real estate, that’s likely to increase in value. That’s because regular corporations (sometimes called C corporations) and their shareholders are subject to a double tax (both the corporation and the shareholders are taxed) on the increased value of the property when the property is sold or the corporation is liquidated. By contrast, LLC owners (called members) avoid this double taxation because the business’s tax liabilities are passed through to them; the LLC itself does not pay a tax on its income.