Corporation vs. LLC – Which form should I choose?
The corporation and the Limited Liability Company (LLC) are two U.S. legal forms for companies. The ALTON founding team will support you in forming both types of companies. However, the corporation is often recommended for foreign entrepreneurs who would like to found a U.S. company. But why?
What are LLCs and corporations?
Let’s look at both U.S. company variations briefly.
The corporation is the U.S. variation of the share corporation. However, there are clear differences with foreign Corporation. A foreign Corporation (e.g. German AG) is in principle only suitable for large companies. However, corporations can also be suitable for individual entrepreneurs.
The corporation involves official bodies, including:
- the Board of Directors, which is responsible for basic company decisions,
- the Executive Officers, who make the day-to-day decisions and
- the Shareholder Meeting, the corporation’s meeting of the shareholders.
However, with a corporation a single person may be appointed to all bodies of the company. The individual founder is then the only member of the Board of Directors as well as the only Executive Officer.
A Limited Liability Company (LLC) gives an entrepreneur great flexibility in the founding of the company structure. There are no official company bodies. Responsibility for company management leadership can rest with all company owners (Member Management) or with an individual person named the manager (Manger Management).
Similarities between both company forms
Forming your company in the U.S. state of Florida offers important advantages for the corporation as well as the LLC. We have also said that it is possible for a single entrepreneur to form a company. Moreover, both company forms offer the founder limited liability and offer him or her, in principle, the opportunity to lead the company exclusively from outside the U.S.. It is now time however to address the disadvantages of the LLC. And these are related to the tax evaluation of the company in the foreign country.
The major disadvantage for foreign entrepreneurs
The LLC has a major disadvantage for foreign entrepreneurs who also want to have a location in their country: the valuation of the LLC formed by the foreign Financial Office.
Example: For the German authorities, the classification of the LLC by the U.S.-American authorities is actually non-binding. It may be the case that the LLC named as a partnership in the U.S. is classified as a corporation in Germany. This can bring clear tax disadvantages. Forming an LLC is thus generally sensible only if, for example, an entrepreneur has relocated to the U.S. and is no longer obligated to pay taxes in their country.
Our advise: It would be best for you to found a corporation. If you, nevertheless, wish to have a tax evaluation as a partnership, play it safe and found a Limited Partnership (LP) in connection with a corporation (such as GmbH & Co. KG).
We at ALTON support our clients in founding LLC as well as corporations. Let us advise you in a non-binding conversation.