Why LLCs and Corporations are Popular Choices for Crypto Companie
It's safe to say that most of us are aware of the inherent volatility that cryptocurrency has, but the massive growth in crypto traders proves that this reputation is no longer the hindrance it used to be. Indeed, even established finance firms like Visa are adopting their own crypto strategies as a way to meet consumer demands.
These developments mean that setting up a crypto company has the potential to be a worthy investment. To that end, the entity you choose to establish yourself as will greatly impact how your business is run.
This article will therefore outline why crypto companies tend to register as limited liability corporations (LLCs) and corporations.
Due to the volatile nature of crypto, you'll need to make sure that your company has some form of liability protection. This is where LLCs come in handy, as they separate your personal assets from your business funds in order to ensure that you stay protected should a claim go against your business. LLCs are a step up from sole proprietorships (which don't offer liability protection), making it a suitable option for crypto companies that are just starting out but who want to establish their business as a legal entity.
Aside from granting your company status as a legal entity, LLCs do not restrict the number of owners (otherwise known as "members") that your company can have. These members can also have any designation you choose, which means there's lots of flexibility for your team when it comes to business structure. Allowing more members onboard also lets you leverage each member's expertise, which is crucial in helping your company grow. You can choose to have regular board meetings and have a written outline of everyone's roles, but these aren't required of LLCs.
It's also worth noting that it is easier to establish an LLC than a corporation. The specific steps to setting up an LLC include:
1. Establishing a name for your business
2. Partnering with a registered agent who will receive your legal documents
3. Filing an Article of Organization
4. Writing your Operating Agreement
5. Applying for an Employee Identification Number (EIN) if your LLC has more than one employee
You should remember to keep in mind that there might be some state-specific regulations that you have to abide by. You'll also want to make sure you have a separate corporate bank account to keep your finances in-check.
Setting up your business as a corporation also establishes it as a legal entity, making your enterprise look legitimate to clients and partners alike. You can either choose to set yourself up as an S or C corporation, with taxation being the biggest difference between the two. C corporations are doubly taxed, so as an owner you'll get taxed on the corporate and personal level. Owners of S corporations simply get taxed on a personal level, but this also means that the IRS pays special attention to payrolls to make sure that employees are being paid fairly.
When you file to register as a corporation, you're typically established as a C corporation right off the bat. S corporations will require additional forms. Aside from the registration steps listed above, here are some additional steps when establishing yourself as a corporation:
1. Writing your corporate bylaws
2. Drafting a shareholder's agreement
3. Holding your board of directors meeting
4. Issue stock certificates
Corporations also allow you to bring other members on board, but there are specific designations that each member needs to fill. For instance, you'll need a Chief Executive, a Chief Operating Officer, and a Chief Financial Officer. You'll also need to host regular board meetings that you will need to keep records of; as mentioned above, hosting your initial board meeting is an important step in registering as a corporation. This formal structure does look more official, but it also requires more work as each member needs to fulfill the responsibilities of their role.
As with an LLC, you'll need to set up a separate bank account for corporate funds. These additional requirements mean that corporations are generally reserved for more established businesses, meaning this can be an option for you should your company expand.
Our previous post on Bitcoin Vs. Stablecoins: Who Will Win? shows that the crypto industry is growing, meaning there's lots of room for new companies to join in and make crypto accessible to consumers. Deciding on your business entity as early as now makes setting up your company much easier, allowing you to focus more on research and development for your services.