This Q comes up sufficiently frequently that I blogged about it almost two years ago (Should I form an LLC or a corporation?). Here is the most important portion of that post:
The following are the factors that, in my experience, are most likely to lead an entrepreneur to form a corporation rather than an LLC:
- An expectation that outside funding will be sought, especially from institutional investors (venture capitalists, in particular, tend to invest only in corporations).
- A desire to offer tax-advantageous equity ownership interests to employees and independent contractors (more straightforward to accomplish with a corporation than with an LLC).
- Prospective customers may feel that a corporation is more substantial and more “real” than an LLC (marketing and sales consideration).
The most significant disadvantage of a corporation is compliance-related overhead: The need to conduct annual shareholder meetings and regular board meetings and to prepare and file minutes for those meetings.
So what I have seen among my clients is: If none of the pro-corporation factors described above is present, the client forms an LLC to avoid the expense and effort associated with compliance-related tasks.
Keep in mind that, with two founders (rather than one), whichever type of entity you create you will need to have in place an appropriate agreement addressing vesting of equity interests, buy-sell restrictions, and the like.
Disclaimer: This information does not constitute legal advice and does not establish an attorney-client relationship.