There are many nuances and specifics to consider. The kind of entity you choose will have an effect on your yearly fees, whether you’ve to hold yearly meetings, and how you limit purchasing and selling of ownership interests
What is an LLC?
LLC is short for a limited liability company. However, you should be careful of anybody who says it is a limited liability corporation. Keep in mind that there is no such thing. An LLC is a business structure that provides some tax benefits as well as personal liability protection. To form an LLC, you will need to file articles of organization.
What is a Corporation?
Unlike an LLC, when you form a corporation, you will have to file articles of incorporation. While you may complete some of the same forms and documents as an LLC, keep in mind that it is not the same thing. As legal entities, corporations can employ people, borrow money, and enter into agreements with other businesses and companies.
Tax Election Options
LLCs usually have more tax election options compared to corporations. By default, corporations are taxed as C-corps. On the other hand, single-member LLCs are usually taxed as sole proprietorships, while multi-member LLCs are often taxed as partnerships. For example, starting and running an LLC in American Samoa means owners or members won’t incur state-level taxes
LLC owners are known as members, and each member owns a specific percentage of the company. As LLCs can’t issue shares, they don’t have shareholders. In contrast, the owners of a corporation are known as shareholders and own shares of the corporate stock.
Both these entity types require some maintenance to retain their legal status. However, note that the complexity and nature of this maintenance differ. Usually, LLCs require some type of regular financial reporting to be filed with the relevant state agency. On the other hand, corporations require annual meetings of shareholders as well as the board of directors apart from filing the annual report.
Both kinds of entities offer protection to the individual owners from personal liability to creditors. However, the LLC allows the owners to choose the tax treatment. As a result, there’s no tax at the company level, and profits and losses flow through to the individual owners.
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