LLCs vs. Corporations: Key Differences Every Oregon and Washington Entrepreneur Should Know
By: Owner & Attorney, Michael Jonas, JD, MBA
When you are starting a business in Oregon or Washington, one of the first big decisions you will face is choosing a legal structure. While sole proprietorships are simple to start, they do not provide liability protection. That is why many business owners consider forming either a Limited Liability Company (LLC) or a Corporation.
Now, quick caveat: I am not a tax lawyer, accountant, or bookkeeper. I focus on the legal and strategic side of business formation. For tax treatment and bookkeeping details, I always recommend bringing in those professionals. I am glad they do that work because I would not be the best at it. What I can do here is walk you through the legal and structural differences between these entities, give a little history, and explain why staying a sole proprietor can leave you personally exposed.
A Brief History
The Corporation is one of the oldest forms of business organization. It traces back centuries to Europe, where corporations were created by royal charter to handle large, risky ventures like overseas trade. Think of the Dutch East India Company. Investors pooled resources, and if things went wrong, their personal fortunes were not automatically wiped out. That concept of limited liability became the cornerstone of modern corporate law.
The LLC is a much newer creation. It was first introduced in Wyoming in 1977 as a hybrid business structure. The idea was to give small businesses the same liability shield as a corporation, but with the tax flexibility and fewer formalities of a partnership. Over the next few decades, other states followed suit, and by the 1990s LLCs were recognized nationwide. Today, they are one of the most common business structures for small and mid-sized companies.
LLC vs. Corporation: Structural Differences
Ownership and management are organized differently in each entity. An LLC is owned by members, who can be individuals, other businesses, or even trusts. Members can run the company themselves or appoint managers. Corporations are owned by shareholders, with oversight from a board of directors and daily operations handled by officers. Corporations must follow stricter formalities like adopting bylaws, holding shareholder and board meetings, and maintaining official records.
Taxation is also distinct. LLCs are generally treated as pass-through entities, meaning profits and losses go directly to the members’ personal tax returns. This avoids double taxation, though LLCs may elect to be taxed as a corporation if it is beneficial. Corporations, unless they qualify and elect S Corporation status, are taxed at the corporate level and then again when profits are distributed to shareholders as dividends.
When it comes to compliance, LLCs are easier to maintain. They do not have the same statutory requirements for annual meetings or detailed recordkeeping, though it is wise to have an operating agreement in place. Corporations face more ongoing obligations but that structure can be appealing to some business owners and investors who value predictability.
Raising capital is where the differences often matter most. You can still be a startup LLC and bring in investors. New members can be admitted, and their rights to profits, voting, or special returns can all be spelled out in the operating agreement. The challenge is that many investors are more familiar and comfortable with stock, not membership interests. They should understand that membership interests are still a form of investment ownership, but the less standardized format can make institutional investors wary.
Corporations, especially Delaware C Corporations, remain the default choice for venture capital funds because issuing stock is straightforward, transferable, and scalable. The moment a corporation issues stock, however, securities laws come into play. That means compliance with federal SEC rules as well as state-level “blue sky” laws, including restrictions on who can invest and requirements for disclosures or filings.
Why So Many Companies File in Delaware
Delaware has earned a reputation as the state of choice for large corporations because of its business-friendly laws and specialized court system. The Delaware Court of Chancery handles corporate disputes quickly and predictably, which appeals to large companies and institutional investors.
But here is the myth: you do not need to file in Delaware if you are starting and running a business in Oregon or Washington. Unless you are actively pursuing national venture capital or operating at a very large scale, filing in Delaware just creates extra costs. You would still have to register in your home state as a “foreign” company and comply with both sets of requirements. For most small and mid-sized businesses, the smarter path is to form your LLC or corporation right where you are doing business.
Reality Check: Success Is Not About the Entity
The type of entity you choose does not determine whether your business will succeed. You can be a thriving LLC or a struggling corporation. The entity is simply a tool. Success depends on how you manage your business, how you handle your finances, and how you grow.
Why Sole Proprietorships Do Not Protect You
Many entrepreneurs begin as sole proprietors because it is easy. No paperwork with the state is required, and income and expenses flow directly onto your personal tax return. The problem is that there is no legal separation between you and your business. If your business is sued or falls behind on debt, your personal assets—your house, savings, and car—are all at risk.
Some people think they have solved this by filing a “Doing Business As” name. In Oregon, this is called an Assumed Business Name (ABN). In Washington, it is called a Trade Name. While these filings let you operate under a business name, they do not create a separate legal entity or liability protection. It still ties directly back to you as an individual. To actually separate yourself from your business, you need to form an LLC or a Corporation.
Bottom Line
If you want simplicity and flexibility, an LLC often makes sense. If your goal is to scale and attract outside investors, or if your particular career path requires a corporate structure, a corporation may be the better choice. You do not need to file in Delaware unless you are seeking venture capital or operating at a size where investor expectations and specialized courts make that worthwhile. For most Oregon and Washington entrepreneurs, forming locally is the most practical and cost-effective choice.
Above all, remember that choosing an entity is only one step. Success comes from execution, planning, and good advisors. If you are still operating as a sole proprietor, it is worth seriously considering forming an LLC or a Corporation to protect yourself and your future.