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Frequently asked questions

1. What's the difference between a corporation and an LLC?

   Both protect owners so they’re not personally on the hook for business liabilities or debts. One key difference is how they’re owned. The owners of LLCs are called members, and their ownership is divided into membership interests. Corporations have shareholders, and their ownership is divided into shares, which are units of stock.
   
   Another difference is how they’re maintained. Corporations generally have more formal record-keeping and reporting requirements, less management flexibility, and require a board of directors. Even though LLCs are considered easier to start and maintain, investors tend to prefer corporations.

2. How does forming a corporation protect my assets?

   It ensures that you and other shareholders aren't personally on the hook for company debts and liabilities.

3. Why do many corporations form in Delaware?

   Large public corporations or those planning to go public can benefit from things like Delaware's well-established and predictable body of corporate law—aka how courts tend to resolve business disputes. Venture capital firms and angel investors also often prefer Delaware corporations. However, most small businesses form in the state where they do business to avoid added costs and complexities.

4. What are shares, and what types are there?

   Think of shares as your piece of the ownership pie—and there are two main types (i.e. "common" and "preferred"). Common shareholders have voting rights and can receive dividends if they're issued. Preferred shareholders have priority over common shareholders when it comes to dividends and payout claims (if the corporation becomes insolvent).

5. How can I go from an S corporation to a C corporation?

   You need majority shareholder consent to switch before you can change your status with the IRS.