LLC vs. Corporation For Interior Design Businesses

What’s Better for a Small Interior Design Business: An LLC or Corporation?

If you want to start your own business as a designer, you need to consider this important question — is it better to have an LLC or corporation for an interior design business? In this article, we’re going to help you decide by explaining what an LLC or corporation for an interior design business are, as well as by sharing the pros and cons of each, and much more. 

Let’s begin with a brief summary of the main difference between an LLC and a corporation.  In short, an LLC can be owned by one or more people, while stockholders (who own stock in the business) own a corporation. Now, let’s delve in further.

What is an interior design LLC?

LLC stands for limited liability company, which means that you yourself as the owner or co-owner(s) of the business are not personally liable for the business’ financial matters and any associated debts or obligations. This allows you as an individual to remain separate, legally and financially, from your interior design business. Check out Everything You Need To Know About Starting an LLC for an Interior Design Business to learn more.

What is an interior design corporation?

Much like in an LLC, an interior design corporation is considered a separate legal entity versus any one individual or group of individuals. As we mentioned in our intro, stockholders comprise the owners of a corporation. But corporate structure goes beyond this, requiring a board of directors that are elected at an annual meeting. Articles of corporation also need to be filed with the state government to legally form a corporation. Stocks are then distributed to shareholders (i.e., investors) who own shares of the company. 

What is the difference between an LLC and a corporation?

Let’s explore the differences of having an LLC vs. a corporation for an interior design business even deeper.

Tax differences 

Taxes are probably one of the biggest differences between LLCs and corporations. In an LLC, the owner or owners of the business report profits and losses on their individual tax returns and not through the business. This can be a benefit to owners by allowing for numerous business tax deductions on personal income taxes.

Corporations, on the other hand, are taxed separately as an “individual” or its own entity, so individual shareholders don’t account for profits and losses in their own taxes. Any corporate profits and dividends are all taxable. Corporations, however, can also deduct all business expenses, as well as take advantage of exclusive federal deductions.

Ease of formation

LLCs are typically much easier to form than a corporation and require less paperwork. While corporations with shareholders (owners) and elected board members have a slightly more complex structure than LLCs, most states also require LLCs to file articles of organization and some states also require filing a public notice. 

Corporations, meanwhile, involve electing/appointing directors, filing articles of incorporation, writing corporate bylaws, shareholder agreements, issuing stock and other requirements.

Governance

Both LLCs and corporations are governed by the state law in which they reside. However, larger corporations that become public, and thus publicly traded, are governed by federal law mainly under the Securities and Exchange Commission 

Annual requirements

Though specific annual requirements vary from state to state, LLCs typically have less annual requirements than corporations. Meanwhile, corporations must hold shareholder meetings each year and elect or confirm their board of directors annually. Anything discussed in the annual corporate shareholder meeting must be documented in notes called “minutes.” This isn’t required for LLCs nor is having annual meetings.

Is it better to have an LLC or a corporation for an interior design business?

Getting down to the essential question — what is better for a small interior design business, an  LLC or corporation — let’s discuss the main pros and cons to consider that are distinct for each.

LLC Pros

• Not a lot of paperwork to complete 
• Taxes on profits can be paid via your personal income tax return
• Less expensive to file
• Simpler structure for business operations, ownership, etc.
• Decisions can be made by the owners themselves and not other stakeholders

LLC Cons

• Owners/partners need to pay self-employment taxes
• Receiving outside investing can be challenging and can not sell stock

Corporation Pros

• Greatly ability to attract investors and can sell stock
• More tax deduction options
• Defined business structure and can be more easily transferred to a new owner

Corporation Cons

• Takes more time to launch and paperwork is more involved
• Possibility of double taxation if the corporation pays taxes on profits and then shareholders pay taxes on capital gains or dividends
• More regulations and less flexible structure

Another thing to know is that if you’re beginning your interior design as a freelancer, you do not need to form an LLC to start your freelancing business. You can work as a sole proprietor or as a general partnership. However, it’s important to remember that you and/or your partners will be personally liable in the event that any legal issues arise. 

When weighing your options for choosing an LLC or corporation for your interior design business, it’s also helpful to consider how other designers approach this decision. According to a survey conducted by Houzz in 2022, nearly half (49%) of the interior designers surveyed first registered their interior design business as an LLC. Closely following, 35% of interior designers first registered their business as a sole proprietorship. Just 11% of interior designers reported first registering their business as a corporation (either an S-Corp or a C-Corp). Check out “Should my Interior Design Business Be an LLC or Sole Proprietorship?” to learn more.

Conclusion

Now that you know more about the differences between an LLC and corporation, as well as pros and cons of each, you’re more prepared to decide whether an LLC or corporation would be best when launching your own interior design business. When working through the details of starting your business, make sure to keep in mind how you’d like to see your interior design business evolve and grow in years to come. This can help in your decision-making as can consulting with an attorney or accountant on more specific LLC vs. corporation benefits. Continue learning more about how to set up your business by reading How to Register Your Interior Design Business.

The information contained in this article should not be relied upon as legal, business, or tax advice. We encourage you to seek guidance from your legal counsel, business or tax specialist with regard to how the information contained in this article may or may not apply specifically to your business.