LLCs and Corporations
Corporations and LLCs are similar to each other in that they limit the owners’ personal liability for business debts. This makes them different from sole proprietorships and partnerships in which the owners are personally responsible for business debts. They are also different in that you must do more than just start the business to form an LLC or corporation.
An LLC is not a separate legal or taxable entity. The owners still report their share of business income on their personal income tax returns. LLCs require registration with the state, annual fees, an operating agreement and other formalities.
A corporation is an independent legal and taxable entity. This means that the business is legally separate from the people who own and manage it. The owners of the corporation don't report business income on their personal tax returns. Instead, the corporation itself files an income tax return. However, the owners do pay personal income tax on salary they earn from the corporation. Corporations require registration with the state, annual fees, by-laws, issuing stock, regular meetings and other formalities.
An LLC or corporation might make sense for pet care service providers who:
- Have a higher risk of being sued by customers
- Operate out of a place of business, such as a boarding kennel
- May have large business debts
- Have substantial personal assets they wish to protect from business debts
One of these business structures may be appropriate for veterinarians, grooming shops, boarding kennels, breeders and doggie day care centers.
Next up: How to Form an LLC or Corporation
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