Choosing an LLC vs. Corporation for Your Blockchain or Cryptocurrency Company
It’s normal for a business owner to question their judgment occasionally. Don’t be too hard on yourself, though;sometimes, the right choice isn’t obvious or simple. Perhaps this is even more relevant in the new field of cryptocurrency and other blockchain businesses.As a student, one of the most crucial choices you’ll have to lay the groundwork for your company is how it will be organized legally.Create your business as a formal legal entity, but decide for yourself whether a Limited Liability Company (LLC) is the best option.The importance lies not in the specific entity you pick but in the fact that you pick one at all. Incorporating your business offers you protection from personal liability and oftentimes additional tax advantages. There are benefits and drawbacks to each entity type.Let’s see if forming an LLC or a corporation makes more sense for your cryptocurrency venture.
Forming an LLC for Your Blockchain Business
Your research should have led you to the conclusion that limited liability companies (LLCs) are the most common form of business organization in use today. Nevertheless, why should your cryptocurrency or blockchain business incorporate if operating as a sole proprietorship would be sufficient? Even though an LLC and a sole proprietorship are both taxed the same, the main benefit of an LLC is that it keeps your business and personal lives separate. While cryptocurrency may be trendy right now, it’s still a developing market where it’s smart to keep your money under lock and key. To protect yourself and your family from business lawsuits, you should establish your company as a separate legal entity. In addition, you have full authority over all operational matters and can always bring on new investors who will be listed as co-owners of the business with you. You can get the most security for the least amount of initial work by forming an LLC, and then, when the time is right, you can expand into a more complex business structure. You could benefit from the limited liability company’s (LLCs) more fluid profit distribution, ownership, and management structures for the time being. With so many new cryptocurrency options available today, having “LLC” as part of your company name can help establish trust and credibility for your crypto or blockchain venture. The more you can do to reassure prospective clients and collaborators, the better.
Is a Corporation the Right Structure for Your Cryptocurrency Business?
A limited liability company (LLC) is just one possible business structure for a cryptocurrency or blockchain startup; another option is to go the corporation route. There are many different types of corporations, but we’ll focus on S Corporations and C Corporations here. S Corporations, like LLCs, are pass-through entities that allow owners to keep all of the money they make. Double taxation is not risky because owners must still report their share of the profit on their individual tax returns. Due to the limited influence of the owners, all major corporate decisions must be put to the vote of the shareholders. Despite the security of their property, the owners have lost their autonomy in making important choices. On the other hand, C Corporations are subject to double taxation. That could be a contributing factor to the fact that LLCs and S Corporations far outnumber C Corporations in the business world. Even so, many large businesses, including cryptocurrency businesses like yours, take advantage of C Corporation status in order to raise capital through common and preferred stocks (S Corporations can only issue one class of stocks). C corporations offer similar liability protection to their owners but have much higher operating costs and more complex taxation requirements. Do not immediately convert to C Corporation status if you are a cryptocurrency or blockchain startup. Which business model is most suitable for you and your cryptocurrency venture depends on a number of factors, including your current tax situation and your goals for the company’s future. You should consider whether or not forming a corporation is on your horizon, as corporations are ideally suited for raising venture capital. Suppose you plan to become an active cryptocurrency trader in the coming years. In that case, a company structure that allows for streamlined reporting of business activity may prove useful in keeping up with the demands of a rapidly expanding enterprise. But if you want to grow quickly, the limited liability company structure may not work for you. If you want to incorporate a cryptocurrency or blockchain company, careful advance preparation is absolutely necessary. It will take a great deal more time and patience to manage the requirements of a C-reporting corporation than it will manage the requirements of an LLC. There is a winner in every situation. If you are having trouble deciding, remember that it is easier to switch from a simpler form (such as an LLC) to a more complex form (such as a corporation) than to switch in the opposite direction.
Pushing Forward
As you consider the future of your cryptocurrency business, we hope the information presented above has helped you better understand the landscape. Although deciding to incorporate your cryptocurrency business can be beneficial, this choice shouldn’t be the final step in the process of developing a model for a profitable and sustainable business. As your business grows, it’s possible that it will outgrow its current structure. Earlier in this article, we’ve gone over some of the reasons why that might mean transitioning from an LLC to a corporation. Along the way, you will gain knowledge not only about how to improve business operations but also about how to maximize the impact that your newly founded company can have. In today’s highly competitive business environment, Incfile can help you get set up for success and provide you with some pointers along the way if you’re looking for some pointers along the way. You can take your company to new heights and move forward with confidence in its future if you use the extensive resources we have available to you. We offer services such as virtual mailboxes and tax advice for small businesses in order to assist you in getting your plan for business expansion off the ground. You can get started immediately by going to our website whenever it is most convenient.