Which is better the Inc. or the LLC

BusinessLegal

  • Author David Steinfeld
  • Published October 14, 2021
  • Word count 893

​If you Google whether you should choose the Inc. or LLC for your business, you will likely find scores of blogs and articles on the topic. The corporation denoted by Inc. and the limited liability company recognized by the letters LLC are very close. Basically, the LLC is easier to manage in many respects, but which one fits your business depends on several factors. Put another way, the question of whether to LLC or not to LLC is not an easy one to answer, but any sophisticated businessperson will research the issue as you are now doing.

What is the history of the Inc. and the LLC

Historically, people entered business ventures through partnerships. An easy example is, I have a horse and you have spices, let us take them on the road to sell the spices and split the profits and so forth. But then larger ventures with multiple partners like voyages to the new world required a vehicle more efficient than the common partnership giving birth to the corporation.

The first corporation as we comprehend the concept was the English East India Company that was incorporated on December 31, 1600. The difference between an Inc. and the partnership is that a corporation is managed by a board and owned by shareholders whereas the partnership is owned and managed by the partners. Legally, the partnership offered almost no protection to the partners whereas the corporation was a separate legal person insulating the owners and managers.

In modern times and in response to changing conditions, back in 1999 the Florida Legislature adopted the LLC as an alternative to the partnership and corporation under Florida law. The LLC is basically a hybrid in that it appears akin to a corporation but acts like a partnership in many circumstances.

Until Florida’s LLC Act was revised in 2013, which applied to all Florida LLCs after 2015, the statutes lacked many default provisions that existed in the corporate and partnership laws. Fortunately, the Revised LLC Act of 2013 significantly improved on the old Act and serves as an operating agreement if the LLC owners choose not to have one.

What are corporate governance documents like operating agreements

The entities like the partnership, corporation, and LLC, can be regulated by their internal documents or by the statutes if none exist. These documents are called the governing documents of the business because the do exactly that; they provide guidance for when certain events occur like the death or departure of an owner.

For a partnership the governing document is the partnership agreement. For the LLC it is an operating agreement and corporations use bylaws and a shareholder agreement. From that you can recognize that one document is cheaper than two, which is why many businesses select the LLC in Florida because you only need one document as opposed to two.

What are some advantages of the LLC

With the advent of the LLC in Florida, the partnership has largely fallen out of favor. In the 1990s there were revisions to the partnership laws that tried to bring partnerships closer to what became the LLC, but partnerships simply do not offer the level of protection that LLCs and corporations do.

Further, when business owners look to the courts to resolve internal disputes between the owners, they must recognize that few active judges practiced at a time before the LLC, therefore, it is more challenging for them to resolve disputes in partnerships than with LLCs. Judges today are more familiar with LLCs from their time in private practice so using the LLC increases the chances that a dispute will be correctly resolved.

How do I decide if I need an operating agreement

So while the choices seem to narrow to the LLC or the corporation for most, if after consulting with a qualified business lawyer you opt to use the LLC, the next choice is often whether to spend the money on an operating agreement at all or to have one prepared by a business attorney versus downloading one from a website. Naturally, as a Board Certified expert business lawyer, I am partial to the professionally prepared option, but not because of the financial benefit but because generic online documents rarely if ever fit the unique needs of any business and normally cannot be modified or modified to fit those needs.

The old saying of penny wise, pound foolish applies here. Those who try to save a small amount of money by buying a generic governing document later incur much more money in legal fees to fix a problem. As one who has litigated and tried many of these corporate divorce disputes as they are called before judges and juries, I can attest to the fact that the amount to remedy and resolve the dispute far exceeds the amount that it would have cost to have proper governing documents like an operating agreement prepared by a seasoned business lawyer.

Conclusion

In sum, whether to choose the LLC for your business as opposed to the corporation or partnership is a decision predicated on many factors that is best made after a brief consultation with a good, solid business attorney. Also, whether you need an operating agreement now or can do that later is a business decision that you make after you collect the facts and educate yourself on the options as a sophisticated and smart business owner.

David Steinfeld is one of the few Board Certified business law experts in Florida. He is AV-Preeminent rated, one of the Best Lawyers in America by U.S. News and World Report, and a Florida Super Lawyer and Florida Legal Elite.

Check out https://www.DavidSteinfeld.com/ for helpful videos and articles on Florida business law, real estate disputes, and electronic discovery solutions for your business. This article is provided for informational purposes only.

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