Introduction
Cory and Clarence have developed an invention idea, and as a result, they want to start a company. However, they cannot decide whether to open an LLC or a corporation. They have also chosen a unique name for the company based on their research. Corey and Clarence should consider forming a corporation, as this will enable them to attract investment in development and marketing, as well as secure a patent for their invention and establish a trademark for the company name.
Comparison of LLCs and Corporations
LLC
A limited liability company (LLC) is a business structure that shields owners from personal liability for the company’s debts. AnLLC does not directly pay federal taxes on its profits. Instead, the profits are passed on to the company’s members, who report these figures on their tax returns.
Suppose the company goes bankrupt or faces legal action, for example, any personal assets owned by the owners. The LLC does not have a board of directors, which means that annual meetings are not required to select new members of the board of directors (Mancuso, 2021). Moreover, it allows people to manage an LLC more freely and flexibly. A limited liability company requires fewer formalities and documents regarding accounting, meetings, reporting, and much more than a corporation.
Corporation
Generally, corporations can conduct business independently of the individuals managing them. Entrepreneurs may find this legal entity attractive because of its high growth potential, as it is easier to attract investors to a company than to a limited liability company. Corporation C limits the personal liability of directors, employees, officers, and shareholders (Rendtorff, 2019). This is good because the company’s legal obligations will not become personal for everyone connected with the business.
The corporation continues functioning even if its holders are dismissed or replaced and managers are substituted. Unlike LLCs, corporations are recognized internationally (Mancuso, 2021). The company’s profits are taxed both personally, in the form of dividends, and at the corporate level, which is known as double taxation. In addition, officers, shareholders, and directors, as a rule, cannot be held liable for commercial debts, provided the company complies with all corporate formalities.
Structure
While the documents required to create both business structures vary, the information included in each, including the owners’ company name, address, and conditions, is usually the same. C-Corporation has a fixed structure consisting of directors, officers, and shareholders(Rendtorff, 2019). On the other hand, LLC members may structure their business model in any way.Limited liability companies are complex tax business models, while LLCs are taxed twice at the personal and corporate levels.An LLC cannot attract outside investments besides banks, while corporations can sell shares to raise capital.
Financial Aspect
On the other hand, corporations may incur more fees than limited liability companies. Therefore, it is essential to push away from the goals and opportunities of the business, since an LLC is preferably for a single owner and arguably better for a partnership.LLC is more suitable for business owners whose main task is the flexibility of business management (Mancuso, 2021).Furthermore, it would be best to create a corporation for a business owner who wants to have the maximum number of personal asset protection plans aimed at finding significant investments from outsiders.
The Best Business Form and Protection for Cory and Clarence
It will be more profitable for Cory and Clarence to form a corporation. So far, they only have an idea for a widget, and they still have to develop and promote it, which may require investment. They can use such intellectual property protection as a patent for their invention.
A patent is a state–granted monopoly on the creation, sale, and use of an invention, preventing others from using it. Usually, it is valid for up to 20 years, and to register this invention, they need to prove its novelty, usefulness, and non-obviousness (Grzegorczyk, 2020). The patent holder has the permission to decide who can or cannot use the patented innovation during the patent protection period.
In other words, patent security means that a story cannot be made, distributed, used, sold, or imported commercially by another person without the patent owner’s consent. The U.S. Patent and Trademark Office is responsible for issuing U.S. patents and registering trademarks (Flikkema et al., 2019). They must contact the U.S. Patent and Trademark Office to accomplish this.
Corey and Clarence selected a distinctive company name that matched their research findings. A trademark can be used to protect this name. A brand can be any word, phrase, symbol, design, or combination of these things that identify goods or services – this is how customers recognize the company in the market and protect against counterfeiting and fraud (Flikkema et al., 2019).
The use of the trademark does not allow other persons to use the company’s or individuals’ products or services without their permission. Although brands do not have an expiration date, the owner must regularly use them to obtain related protections (Stim, 2022). A trademark may also be registered with the U.S. Patent and Trademark Office. They need to contact the U.S. Patent and Trademark Office to do this.
Conclusion
Thus, Corey and Clarence should open a corporation since their main task will be to find significant investments from investors at this stage. LLC, in turn, cannot attract external investments except from banks. It is also best to patent their invention, as this will protect them in the future from using their creativity for commercial purposes without the owners’ consent.Using a trademark for the company name is worth using, as this will protect the company from forgeries and fraud.
References
Flikkema, M., Castaldi, C., de Man, A. P., & Seip, M. (2019). Trademarks’ relatedness to product and service innovation: A branding strategy approach. Research Policy, 48(6), 1340-1353. Web.
Grzegorczyk, T. (2020). Managing intellectual property: Strategies for patent holders. The Journal of High Technology Management Research, 31(1), 100374. Web.
Mancuso, A. (2021). Your own limited liability company: Create an LLC in any state. Nolo.
Rendtorff, J. D. (2019). The concept of business legitimacy: Corporate social responsibility, corporate citizenship, corporate governance as essential elements of ethical business legitimacy. In Responsibility and Governance, 45-60.
Stim, R. (2022). Patent, copyright & trademark: An intellectual property desk reference. Nolo.