Should I form an LLC? – Watch Video

Should I form a LLC or a corporation and can you explain the difference?

They are very much the same from a liability protection standpoint, but completely different from a tax standpoint.  So much so that in our firm, we use the LLC as an entity of last resort when we have no other option but to use a LLC.  The reason for this is that most states have applied certain “junk” fees to LLCs that don’t apply to corporations.  By way of example, in California, we have what’s called the “gross receipts” fee.  After the company has more than $250,000 in gross revenue, a fee kicks in for a LLC that can be as high as $12,000 per year.  A LLC is a very expensive form of doing business.

Why would you ever form a LLC?  Well, it comes down to basically three situations: One is when you expect to have investors who are not just “moms and pops”, but other types of businesses and foreigners.  Another situation is when real estate will be owned by the company.  And, finally, when you need extreme flexibility in the structure of the business  – the kind of flexibility that is not available from a corporation.  A corporation has certain rules of order.  There are shareholders who elect a board of directors; there are directors who elect officers.  And there is not a lot of flexibility in changing the structure. A LLC, on the other hand, is a blank slate.  You can structure it in any way you want.  You can have a complicated management structure or no management structure.