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Comparing an LLC to a corporation

On Behalf of | Jun 7, 2021 | Business Formation |

LLCs and corporations are desirable business structures because they protect owners from personal liability. There are several key differences between the two that you should know before choosing a business structure in Pennsylvania.

Easier to form

The business formation process for an LLC differs from state to state, but it’s still easier to go through compared to forming a corporation. In Pennsylvania, you need to file a Certificate of Organization with the Pennsylvania Department of State. It costs $125 to do this. Pennsylvania allows you to file the certificate either online or through the mail.

No double taxes

LLCs don’t go through double taxation like corporations do. With a corporation, you pay taxes both for the business and for yourself. LLC owners have the flexibility to choose how the government taxes them. They can choose the sole proprietorship, partnership or corporation taxation method.

Automatic dissolution

A downside of LLCs is that they are vulnerable to automatic dissolution. The government can automatically dissolve an LLC if it fails to report its filings on time or the LLC transfers 50% or more of its profits within a 12-month period. Unless your operating agreement states otherwise, the government can automatically dissolve the LLC if a member dies, a member withdraws or a merger occurs. In some situations, you can continue operating the business after automatic dissolution, but the government may consider it as a different business structure until you fix the dissolution.

Personal risk when the LLC dissolves

Members of an LLC have personal liability for the business when the government dissolves it, which is why it’s important to know under which situations your LLC dissolves. You can re-register the LLC when this happens. Act promptly because you and any partners will have personal liability until you do.

LLCs have their pros and cons. Understand both the advantages and disadvantages before you choose which business structure to use. A business formation and planning attorney may be of assistance during the process.