When Deciding on an LLC or Corporation Does Profit Matter?

Most people know they want to start a business but question whether to start an LLC or Corporation. The reality is there are several opportunities a new entrepreneur can choose from: sole proprietor, LLC, C corporation, S corporation, partnership, etc.

According to Forbes, most businesses don’t make any profit in their first year. Entrepreneur estimates that businesses making a new product take at least three years on average to be profitable. So what gives?

A professor of accounting and finance at New York University’s Stern School of Business opens his MBA finance class by asking his students: “Who would invest in a company which reported 10 consecutive years of losses?” Some of the students wonder whether they are in the right class, and no hands are raised. The instructor continues: “Too bad, if you had invested in such a company, say Amazon or Tesla, you would have been a billionaire by now.”

The point is All Losses Aren’t Alike as there are real versus accounting-driven reported losses. And, this brings us to my next point. While not mandatory, it is increasingly important that business owners understand not only the economics but also the accounting principles that affect their businesses. This could be the decisive factor when settling on whether to create an LLC or Corporation.



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Cristina Carabetta, Esq. is a Principal Attorney at The TLC Group and owner of the luxury brand BETTA. Feel free to email any tips, questions, or comments. Follow her @xtinabetta if you’re interested in business, law, fashion, and a healthy dose of international travel. Cristina lives in NYC and serves as Chair Person of the National Italian American Bar Association


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