The corporation — sometimes called a “C” corp — is the tried-and-true, more traditional business structure. Its more formal structure and established rules are seen as more predictable than that of the LLC, although that is becoming less true as the LLC continues to grow in popularity.
When is a corporation preferable? If your company is planning to seek investors, especially from larger venture capital firms or “angel” investors, you may want to opt for a corporation. Many investors prefer a corporation structure to an LLC due to taxation concerns – and some investors will only invest in a corporation.
Additionally, certain “fringe benefit” plans – such as some stock option and retirement plans – are available only to corporations. These incentives can prove powerful draws for new employees, especially if your company doesn’t yet have the money to pay them a competitive salary. Similarly, if you want to offer employees equity as part of their compensation, equity award plans are typically viewed as simpler and more straightforward in a corporation than in an LLC.
That said, many of these concerns (wooing investors, setting up stock option plans) tend to take place a few years into a company’s life, so it may make sense to start out as an LLC and then convert to a corporation later if need be. Many states provide a seamless process to change an LLC to a corporation with a single filing; in others, the LLC can be dissolved and its assets transferred to a corporation.