How to Choose Your Corporation Type

Before you incorporate your new or existing business in Delaware, you need to spend some time determining which of the various corporate structures best suit your needs. Delaware offers several options which are outlined in the table below. A discussion of each type follows.

Features	LLC	S-CORP	STATUTORY   TRUST	GENERAL   CORP	CLOSE   CORP
Limited Liability	X	X	X	X	X
Pass-Through Taxation	X	X		X	X
Flexible	X		X		X
Anonymous	X	X	X	X	X
Less Formalities	X		X
Attractive to Investors				X	X
Foreign Investors Allowed	X		X	X
Tax Deductible Employee Benefits	X	X		X	X
Durable	X	X	X	X	X
Stock Ownership		X		X	X
More Than One Class of Ownership Allowed		X			X

What is a Limited Liability Company (LLC)?

A Limited Liability Corporation (LLC) is a relatively new type of business entity. Not all states have enacted laws supporting the organization of LLCs, but progressive Delaware has. A LLC is a sort of hybrid corporate entity in that it combines the limited liability of a corporation with the pass-through taxation of a partnership. LLC owners, or members as they are called, can be individuals, other Corporations, partnerships, or any other type of legal entity. There is no requirement that an owner be a U.S. citizen or resident for that matter. A hidden tax advantage is that non-resident aliens of the U.S. can legally avoid all U.S. federal taxes for their non U.S. business activities conducted under the LLC.

Although a LLC provides tax benefits for U.S. entities as well, the primary reason that most LLCs are formed is for its unique protection afforded against creditors. In other corporation structures, such as the standard "C" corp, creditors may be able to have the corporation's inherent ability to protect its officers against personal collection actions. This is known as "piercing the corporate veil", and can occur if the corporation does not follow stringent legal requirements such as holding stockholder and director meetings, keeping minutes and preparing corporate resolutions authorizing certain business transactions. When the corporate veil is "pierced", then individual officers can be held personally liable for the debts of the corporation.

Many of the formalities required of "C" corps and other general corporations are not required in a LLC which makes piercing the corporate veil much more difficult. Should any particular Member or Owner in a LLC find themselves in financial trouble, a creditor cannot seize the LLC's assets or take over the Owner's voting rights as sometimes happens in other types of corporations.