Incorporation Vs. Limited Liability Corporation

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A limited liability company (LLC) has elements of a corporation as well as a partnership. Businesses that select a corporate structure may incorporate as a C corporation or an S corporation. An LLC may elect to operate as a corporation and be subject to the same requirements imposed upon corporations in terms of conducting meetings and paying taxes. More often than not, LLCs opt for a more flexible structure such as that enjoyed by sole proprietorships and partnerships, while maintaining liability protection from business debts.

Double Taxation

  • C corporations have exposure to double taxation. They must pay taxes on business profits, and shareholders of a C corporation also must pay taxes on dividends received from the corporation on their individual tax returns. Corporations can avoid double taxation by forming an S corporation. LLC members and shareholders of an S corporation may pass their share of company profits to their individual or joint tax return.

Formalities

  • Corporations have more paperwork and other requirements than LLCs do. As explained on the Bankrate website, corporations must keep corporate minutes, hold annual meetings and hold shareholder votes on important corporate decisions. LLC members are not required to report company minutes or hold company meetings.

Ownership

  • A member of an LLC may be another LLC, a corporation, foreign entity or individual. Furthermore, LLCs can have an unlimited number of members. Shareholders of an S corporation must be U.S. citizens or resident aliens. Foreign entities, other corporations or LLCs may not be shareholders of an S corporation. In addition, S corporations can have a maximum of 100 shareholders.

Management Structure

  • Corporations have a specific structure that includes directors, officers and managers. LLCs can choose between a member-managed and manager-managed business structure. A member-managed LLC allows the members of the LLC to control the day-to-day operation of the business. Manager-managed LLCs may employ nonmember managers to run the business.

Raising Capital

  • Corporations can issue stock to investors. Furthermore, C corporations can issue more than one class of stock, which enables them to raise funds to cover expenses, expansion and other business endeavors. Shareholders of a corporation can freely transfer, buy and sell corporate shares.

    LLCs are not able to issue company shares. They can add members to the business with the unanimous approval of company's members.

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