LLC or C-Corp. Which is the Best to Start a Business?

Oct 19, 2020

Filing the paperwork to start a business in the USA is relatively easy. Future business owners have a menu of options that includes LLCs, C-corps, etc. to consider. Yet, any entrepreneurs ask: Which is the best to start a business?

The process can be straightforward most of the time. However, business owners need to know the different obligations that regulatory agencies impose when creating a legal entity.

Limited Liability Corporations or LLCs

The easiest way to start a business is by creating a Limited Liability Company or LLC. We recommend our clients consider this entity because it offers a level of personal protection against the company’s debts and liabilities when managed correctly. Very importantly, an LLC gives you flexibility. It does not require special meetings or presentations of corporate records, among others.

In contrast, business owners who are seeking to raise capital may need to create a complex entity called C-corp, which brings shareholders and investors to the entity.

C-Corps are for Share Holders and maybe Investments

Yet, the question of raising capital creates confusion. Ideally, C-corps are for a business that requires investment for start-ups and for things such as research and development or factory construction, for example.

We have seen entrepreneurs that, in good faith, create C-corps to be able to raise money from different partners without understanding the obligations. These may include registering as a securities broker and securities seller when dealing with shares of the business.

In addition, sharing the business ownership forces the principals to have shareholders meetings, and follow strict securities management tasks. Technically, under a C-corp, you can lose control of your business by a shareholders upraising. Remember the case of Apple and Steve Jobs in the 1980s.

We understand that for some business owners, raising capital for a company is important. However, there are other options to consider before starting a C-corp. Among the alternatives are to request a business loan, personal loans from family members or friends, pre-selling, etc.

Unless you are raising millions in dollars in capital, an LLC will suffice since going through the shareholder’s route requires other sets of financial skills.

Real Life Mistakes

We had a case of a business owner who filed a C-corp and confronted the scrutiny of the Arizona Corporation Commission due to the lack of adherence to the Corporate Commission’s regulations.

Fortunately, he contacted us and we were able to present his case, establishing there was no intention to defraud the shareholders. Attorney Marcos managed to get this client a settlement.

Do not hesitate to contact attorney Marcos Garciaacosta for help filing business entities, or represent you with professional and regulatory boards.

Call us to (480) 324-6378 for an appointment.

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