Should You Form a Corporation or an LLC?
This is a transcript of a podcast posted January 2, 2006.
 This is an interview with attorney Anthony Mancuso, an expert on business formations and the author of many best selling titles, including LLC or Corporation? How to Choose the Right Form for Your Business.
NOLO: Tony, when people find out that you’ve written all these books on business formation and corporations and LLCs, is there one common question that you’re often asked?
 ANTHONY MANCUSO: People usually ask a very general question, "What is the best form of business?" when they hear that I write books for Nolo. I usually tell them the best form is no form at all until you have a reason to think about it. If you’re worried about lawsuits, if you’re going into business with someone else and want to make sure you have an agreement in place that covers some of the contingencies, then it might be time to start thinking about it.
Typically, once people worry about limited liability issues or take a look at insurance costs and worry about uninsured risks and those types of things, that’s when they may think about forming an LLC, a limited liability company. When they want to raise capital, or find that they’re making a little too much money and getting taxed on everything, then they may think of forming a corporation to shelter some money in their corporation. But generally, that’s my answer: Wait until there’s a need, and it becomes important -- more than a theoretical question.
NOLO: Is the LLC always the best choice for the owner of a start up business, seeking to limit personal liability?
ANTHONY MANCUSO: It generally is, and people who haven’t heard the news about LLCs often think of S Corporations, but really the LLC has replaced the S Corporation. [The LLC] lets you form a legal entity that insulates you from liability for ... claims against your business and at the same time, it keeps your current tax status. So if you’re a sole proprietor and you form a one-person LLC, you’ll continue to be taxed as a sole proprietor. If you’re a partnership and you convert to an LLC, you’ll continue to have your business taxed as a partnership, so you don’t change your tax status.
And another important part of it is if you’re ever thinking of having your business own real estate, it can be a very, very big mistake to form a corporation because you’ll get hit with double tax on the appreciation of any real estate owned by the business. That’s not true of an LLC.
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