Summary:
A corporation may be better than an LLC in limited situations. Here are similarities and advantages of a corporation.

These days even mom-and-pop businesses look at the advantages of incorporating. They are concerned about protecting personal assets like a house or car from business debts in case of a fiscal disaster.

Owners often consider these two structures: a regular corporation and a limited liability company. They are similar in protecting assets, but from a tax standpoint, they are as different as chocolate and vanilla.

An LLC doesn't pay federal taxes on income, its owners do. And owners pay on this income though it's not distributed. Conversely, the corporation pays taxes on income, and the shareholders pay taxes when the corporation distributes dividends to them.

With both structures, the owner's assets are protected from creditors most of the time. Here are situations where the owner is liable:

• When the owner obligates himself, e. g. For a loan to the business, a bank might require the owner to guarantee it.
  
• When the owner is responsible for paying bills and willfully fails to pay the company's Social Security and withholding taxes.
  
• When the owner's negligence causes injury or damages to others.
  
  

Here are major advantages of the corporation compared to an LLC:

Single ownership: Some states require LLCs to have more than one owner; corporations can exist with only one.

Preparation for going public: If the corporation will later issue stock to the public, it can build a favorable profit history, making going public easier.

Flexible ownership: Unless owners contract to limit transfer of shares, they are more easily transferred. And the corporation can issue stock to raise capital or merge tax-free with another corporation.

Comment. Get some advice from a business tax expert before incorporating. After reading the column below "Seven Tax Reasons Not to Incorporate," you may decide to go with an LLC.

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