What are the possible benefits of forming an LLC, as opposed to a corporation?

There may be tax efficiencies from forming your company as an LLC as opposed to a corporation. Here are some examples of situations where the tax treatment of an LLC may be more tax efficient (in each case, based on discussions with your tax advisor):

1. You have determined that you can use your LLC’s losses to reduce taxes on other sources of income you have.
2. You anticipate that your business will be profitable in the near-term, and you have determined that the pass-through of the profits will result in lower overall taxes than the “double taxation” that applies to corporations.
3. You would like to be able to move intellectual property or other assets into and out of your business, potentially without tax consequences (e.g., you anticipate developing new IP and using it to create “spinoff” companies).

There are other, more complex, tax benefits that may apply as well – you should discuss with your tax advisor if you are considering the LLC form for the purpose of tax optimization.

A secondary reason for forming an LLC is if you still have some uncertainty regarding what exactly your business will be doing and/or what assets it will need to conduct its business. Because an LLC is not subject to the same formalities as a corporation, many major decisions regarding the company’s business (such as what assets to dispose of) can be made with fewer formalities – depending on the content of the LLC’s governing documents, transfers of assets into or out of the LLC may not require any prior written approval, unlike with a corporation (where a formal consent of the Board of Directors would typically be needed). Also, as noted above, assets can be moved into and out of the company, potentially without the tax consequences that a corporation would be subject to.