A medical device company with only 50 employees and $10 million in revenue would classify as a small business (less than 100 people) and therefore should consider which aspects of either an LLC or a Corp. appeal to the company’s current health. Initially, an LLC seems to be the way to go for a few reasons: The owners of an LLC are expected to have more control over the company since it cannot sell shares and split authority with shareholders (although they can sell bonds to raise money). This allows for easier handling of the company’s operations, in short, “Too many cooks spoil the broth”. If an LLC is having difficulties handling paperwork and administrative duties, they can just hire others, as an LLC can have unlimited owners. An LLC also provides the same level of protection against liability that a corporation would have, while also having the option of filing its taxes as that of an S-corp or C-corp. If an LLC intended on transitioning to a corporation, then an S-corp would only be subjected to flow through taxes rather than double taxation, allowing the newly-sprung S-corp to retain more money that it can focus on investments.

The drawbacks to not immediately becoming a corporation is that the corporations themselves take the earnings and losses charged due to being a separate business entity, which provides less risk to the shareholders if severe liabilities ensue. Corporations are also more stable upon the leaving/death of its shareholders, possibly because the more members you have the less power each member has to lose upon their dismissal, therefore the redistribution of that power should not present too much challenge. Finally, corporations tend to acquire credit easier and in turn, attain loans more easily than LLC. Overall, an LLC would be a more suitable option in the case of a small company in that it is not as prone to taking larger, more riskier steps in growing. If the LLC intends to go public, then it always has the option of filing to become a corp assuming it can handle the large-scale operations that typically accompany it.

Are there any major medical device companies today that directly originated as an LLC? What do you think prompts an LLC into becoming a corporation. For what reasons would a company chose to become an S-corp or C-corp (other than the double taxation of C-corps). Finally, have there ever been any major liabilities inflicted on a medical device company that could have been mitigated if they started out as another type of corporation (LLC instead of Inc)?

Reference:
“LLC or Corporation – Which Should I Select for My Business?” by Jean Murray (updated Oct 06, 2018) The Balance Small Business.