This is the next post in our series on starting an Oklahoma business with confidence.  The last article delves into vital differences between an Oklahoma LLC and a Sole Proprietorship.  As previously discussed, the most significant difference between the two lies in the limit of the owner’s personal liability.  This post will discuss the important differences between an Oklahoma LLC and a corporation.

Whether you are starting a new business or growing an existing one, entity selection is a crucial step.  Entity selection can have tax, liability, business, and other implications.  Therefore, an owner must proceed with caution.  If you are in a similar situation and are seeking legal counsel to help you navigate the entity selection, formation, and document execution process, we are here to help.  You can contact us online or by telephone to get in touch with a business law firm and speak to an OKC business lawyer.

Oklahoma LLC and Corporation: what are the differences?

An LLC is a relatively new business entity as compared to a corporation.  It is sometimes referred to as a hybrid entity because it has some characteristics of partnerships and some of a corporation.  It is formed under Oklahoma Limited Liability Company Act.  18 O.S. §2000.  While an LLC protects owners’ personal assets from claims arising out of their business dealings just like a corporation, it is taxed as a pass-through entity like a partnership.  Because of this, an LLC affords the best of both worlds – a limit of liability and no taxation at the entity level.

An Oklahoma corporation is an entity formed under the Oklahoma General Corporation Act, 18 O.S. §1005, by filing a certificate of incorporation with the Secretary of State.  Some of the advantages of an incorporated business include limited liability, perpetual existence, and flexible management structure.

Based on the IRS election, a corporation can choose to be a C corporation or a S corporation.  Both structures get their name from parts of the Internal Revenue Code they choose to be taxed under.  The C corporation is the default structure, and its profit is taxed to the corporation when earned and to the shareholders when distributed as dividends.  This results in double taxation.  On the other hand, if a corporation elects to be taxed as an S corporation, it’s not taxed at the corporation level, instead, it passes through to the shareholders and is reported on their personal tax returns.

Should I set up my business as an LLC or a Corporation?

Setting up the right entity, whether an LLC or a corporation, involves considering various factors such as tax implications, financing structure, liability protection, and business type.  And, the burden of selection of the type of business entity ultimately rests on you.  However, here are some pointers that may be beneficial in your selection process.

If you plan on starting a medium or higher-risk business, then LLC may be more suitable as it affords protection of personal assets and likely a lower tax rate.  It provides an added layer of protection for personal assets by shielding your home and savings from legal actions arising from client dissatisfaction or injuries related to the business.  For example, if you get sued for an issue arising out of the business matter, then the liability generally stays limited to the business assets and does not reach personal assets.  This helps safeguard your personal wealth.  Also, LLC can prove beneficial to freelancers, real estate investors, consultants, professionals, and many types of small businesses.

On the other hand, if you are dealing with a medium or higher-risk business that you plan on taking public or eventually considering selling, then a corporation may be a better fit.  The flexibility offered by a corporation structure can help you raise capital, and sell stocks making it easier to grow and eventually sell.  On top of that, it also helps facilitate a smoother transition to go public or undergo acquisition.

OKC business law firm: Oklahoma business lawyer

Entity selection is the primary and one of the most important steps in your business endeavors.  In addition to having tax implications, it can affect business operations, management structures, and personal liability.  If you are starting a new business or expanding an existing one, we are here to assist you navigate the process.  Contact us online or by telephone to get in touch with a business law firm and speak to a business attorney.  Proudly serving Oklahoma County, Logan County, and Cleveland County.