LLC or C Corp? Filing for the Wrong Entity can Bring Problems

Filing the paperwork to start a business in the USA is relatively easy. Many persons do it by themselves without the help of an attorney.

This is great and painless most of the times but business owners need to know the different obligations that regulatory agencies impose when creating a legal entity.

The easiest way to start a business is by creating a Limited Liability Corporation or LLC. We recommend our clients to prefer this entity because offers a level of personal protection against the company’s debts and liabilities when managed correctly. Very importantly, LLCs give you flexibility and it has no requirements for special meetings, presentation of corporate records, among others.

In contrast, business owners who are seeking to raise capital may need to create a complex entity called C corp, which brings shareholders and investors to the entity.

The question of raising capital creates confusion in our communities. Ideally, it is for a business that requires heavy investing such research and development or factory construction, for example.

We have seen members of our community that, in good faith, create C corps to be able to raise money from different persons without understanding the obligations they are acquiring, such registering as securities broker and securities seller when selling shares of the business.

In addition, sharing the business ownership forces the principals to have shareholders meetings, and follow strict securities management tasks. Technically, under a C corp, you can lose control of your business by a shareholders upraising, such as the case of Apple and Steve Jobs in the 1980s.

We understand that for some business owners, raising capital for a company is important but there are other options to consider before starting a C corp. Among the options are to request a business loan, personal loans from family members or friends, etc.

Unless you are raising millions in dollars in capital, an LLC will suffice since going through the shareholder’s route requires other sets of financial skills.

We have a case of a business owner who filed a C corp and confronted the scrutiny of the Arizona Corporation Commission due to the lack of adherence to the Corporate Commission’s regulations.

Fortunately, he contacted us and we are being able to present his case, establishing there was no intention to defraud the shareholders and managed to get this client a settlement.

Do not hesitate to contact attorney Marcos Garciaacosta for help filing business entities, or represent you with professional and regulatory boards.

Call us to (480) 324-6378 for an appointment.

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