Should My Company Be an LLC or Corp?

Should My Company Be an LLC or Corp?

Introduction

Choosing the right business structure is one of the most important decisions for any contractor. The wrong setup could leave your personal or business assets exposed to risks, like lawsuits or debt. Understanding the differences between an LLC and a Corporation, and how diversifying your business entities can protect your assets, is key to building a strong foundation for your company.

LLC vs Corporation: Which Is Right for You?

What is an LLC?

A Limited Liability Company (LLC) is a flexible business structure that combines the benefits of a corporation and a sole proprietorship. LLCs protect your personal assets from business debts or lawsuits, while allowing pass-through taxation, meaning profits are only taxed once at the individual level.

What is a Corporation?

Corporations are more formal business entities with shareholders, directors, and officers. They provide strong liability protection and are ideal for businesses planning to raise capital. However, corporations face double taxation—once on profits and again on shareholder dividends.

Key Differences

• Ownership: LLCs are owned by members, while corporations have shareholders.

• Taxes: LLCs offer pass-through taxation, while corporations pay corporate taxes and shareholder taxes.

• Liability Protection: Both structures limit personal liability, but corporations may offer additional protection in certain cases.

Liability Protection: Why It Matters for Contractors

The Risk of Personal Liability

As a contractor, you face risks like worker injuries, property damage, or accidents involving company vehicles. Without proper legal separation, your personal assets could be at stake if your business faces a lawsuit.

How LLCs Protect Your Personal Assets

An LLC separates personal and business assets, shielding your personal property from business-related lawsuits or debts. This is especially important in high-risk industries like construction and foundation repair.

Diversifying Your Business for Greater Protection

Setting Up Separate Entities

By creating multiple legal entities, such as an LLC for your main contracting business and another for transportation, you can isolate liabilities. If one company faces legal trouble, the others remain unaffected.

Leasing Assets Between Companies

For example, you can set up a transportation company to own your trucks and lease them to your contracting business. This protects your trucks from being taken if the contracting side faces a lawsuit.

Real Estate Ownership

If your business owns property, consider setting up a real estate company to own and lease the space back to your main business. This protects your business operations from legal risks tied to the property.

Benefits of Diversification Beyond Liability Protection

Tax Optimization

Separate entities allow for strategic tax planning. For example, a real estate company might qualify for different deductions than your main contracting business.

Risk Management

Separating business units into different entities helps you manage risks more effectively. High-risk activities like transportation are kept separate from lower-risk operations, minimizing overall exposure.

Steps to Set Up Multiple Business Entities

1. Create an LLC or Corp for Each Unit
   Decide which structure works best for each area of your business and file the necessary paperwork.

2. Maintain Compliance
   Ensure each entity stays in good standing by filing taxes, renewing licenses, and following state regulations.

3. Consult a Professional
   Work with legal and financial advisors to set up agreements, like leases between entities, and ensure everything is done correctly.

Conclusion

Separating your business into multiple legal entities and choosing the right structure—LLC or Corporation—can protect your assets and give your company room to grow. Contractors who take these steps build stronger, safer businesses.