How to Form an LLC Vs. Corporation

By David Ingram

A corporation, as a separate legal entity from its owners, has the legal right to conduct business and engage in legal proceedings under its own name, as well as the right to sell shares of stock to the public. LLCs combine the advantages of corporations with the advantages of sole proprietorships or partnerships. The process of forming an LLC and a corporation are similar in a number of ways, but there are distinct differences between the two.

A corporation, as a separate legal entity from its owners, has the legal right to conduct business and engage in legal proceedings under its own name, as well as the right to sell shares of stock to the public. LLCs combine the advantages of corporations with the advantages of sole proprietorships or partnerships. The process of forming an LLC and a corporation are similar in a number of ways, but there are distinct differences between the two.

Forming an LLC

Step 1

Select your owners, who are known as members, and a registered representative, also known as an agent. Members own the company jointly, and they may or may not be involved in the day-to-day operations of the business. The state office governing LLCs will use the registered representative's contact information for all legal and official communications from the state. Appoint someone who is responsible for handling your legal issues to be your registered representative.

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Step 2

File your articles of organization. Most states provide a ready-made template to ensure that your articles of organization contain all required information. Required information generally includes the company's name, address and purpose, as well as the registered representative's information.

Step 3

Draft your LLC's operating agreement. Although not required in most states, having an operating agreement is highly recommended. An operating agreement describes the operations of the LLC, setting forth the agreements between the members. An operating agreement is similar to the by-laws of a corporation.

Step 4

Publish a public notice of your intent to form an LLC if it is required in your state. Ask the secretary of state or the office governing LLCs in your state if this is a requirement; if it is, ask for a list of approved publications in your area and guidelines on the content and form of the notice.

Forming a Corporation

Step 1

Appoint a board of directors and draft corporate bylaws. Your board of directors will have a great deal of influence on major company decisions, including the appointment and pay of top company executives. Use your bylaws to set forth rules to govern the board of directors; include provisions for meeting procedures and voting requirements, and clearly specifying the powers and responsibilities of the board.

Step 2

File your articles of incorporation. Similar to the LLC articles of organization, a corporation's articles of incorporation include the company's name, address and purpose. Articles of incorporation also include the names of the board of directors and executive management team, as well as an authorization to sell a certain number of stock shares in the future. The articles for both corporations and LLCs must be accompanied by an administrative filing fee.

Step 3

Issue your first shares of stock to a private group or to the public. Consult an investment bank if you decide to offer your first round of stock to the public. If you do not wish to take that major step right away, authorize the number of shares you anticipate selling in the future in your articles of incorporation, then divide a number of shares between key company stakeholders such as your board of directors, upper management, employees or attorneys.

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What Does Incorporated Mean in Business?

References

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