The Disproportionate Costs of Forming LLCs VS. Corporations: The Impact on Small Firm Liability Protection
AbstractThe LLC is increasingly the ownership form of choice by nascent small business owners as it has some advantages over corporations and sole proprietorships and partnerships. Despite its advantages, some states have higher filing fees for LLCs than for corporations. Some states have significantly higher filing fees than other states for both LLCs and corporations. As a result, emerging companies are often discouraged from seeking liability protection, or they seek a corporation, reducing the flexibility that could be provided with an LLC. Our research shows that the disproportionate cost of starting an LLC is related to the percentage of LLCs formed in comparison with corporations. This can have significant implications to small business owners since they may be choosing ownership forms that are not advantageous to their particular venture strictly based on initial filing costs. These state policy decisions may lead to long-term tax revenue loss within states with higher filing fees.
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