Tip #2: What is a corporation

 TIP #2

On the other extreme side is as a Corporation. A corporation is a separate entity from you which provides protection. It has a lot of formal requirements and has been used for hundreds of years but it is very stringent and there are a lot of hoops to jump through.

 EXPLANATION

As a Corporation, Best Plumbers Ever, Inc. is a separate entity and so if it gets sued only the assets of Best Plumbers Ever Inc. are subject to the lawsuit. Not Jake personally. The downside is it takes more work and money to have your company as a Corporation. There’s the trade-off: convenience versus protection.

Most companies these days are formed as LLCs, not corporation, because corporations have more requirements. Typically, the only time a business is formed as a corporation now is when there are many investors or the company plans on listing on a publicly traded exchange. The vast majority of companies now are formed as LLCs, whether they are plumping companies, trucking companies, or yoga studios. If your company has been a corporation for years already, there’s typically no need to change it to an LLC; but if you’re starting a new company you’re most likely going to form it as an LLC.

Practical and Actionable Takeaway: If your company is a corporation, make sure you’re following all the rules of your bylaws and reporting requirements of your state.