A corporation is a business entity owned by a group of individuals who hold shares in the entity. Those individuals may do business under the corporation, but the corporation operates as a separate entity and must file its own taxes.
An LLC is not a corporation. It is a limited liability company and is owned by individuals, who, as owners, pay individual taxes based on the company’s revenue. An LLC is basically a step above a partnership, but in Florida an LLC must file legal documents with the state, and its tax obligations are dependent on the manner in which it operates.
A corporation is a business entity that allows its owners to operate separately from their personal lives, including the protection of personal assets, although the names of shareholders and officers of the corporation must be made public. Each year a corporation must meet once and file an annual report to the state containing current officers and records.
The owners of an LLC are not separate from the organization. An LLC defines the manner in which the owners will operate, represented by an operating agreement. The only reporting the LLC owners must do is to pay personal income taxes on their income from the business.
A corporation has its own revenue, and pays dividends to its shareholders. The corporation pays taxes based on its revenue, and the shareholders pay taxes on their income from the corporation. The corporation, not the shareholders, is responsible for any losses.
Any income for an LLC is called “pass-through,” meaning that it passes through the company to its owners. Based on the portion each member owns, profits and losses are assigned accordingly. The owners must pay taxes based on the portion of the company they own and their portion of profit and loss.
In a corporation, officers must be elected to determine the leadership. A governing body of officers must be elected, including a president, vice president, secretary and treasurer. Typically, the shareholders of the corporation elect a board of directors. That board can then appoint the officers. The officers and shareholders can be completely separate people, although the board of directors is typically composed of shareholders.
In an LLC, the owners are the operators of the company, and the operating agreement determines who will hold which position and perform which function.
A corporation has articles of incorporation and must elect officers, establish a board of directors and have annual meetings, while an LLC has articles of organization and an operating agreement. Both entities must file their articles with the state, but the LLC does not have to have annual meetings, a board of directors or officers. An LLC does not have to file its operating agreement with the state.
A corporation has shareholders, while an LLC has members. The shareholders are the de facto owners of the corporation, while the members are the direct owners of the LLC.
A corporation shields its shareholders from any personal losses other than in stock value, since it is a legally recognized entity and is separate from its shareholders, officers and board of directors. No personal assets can be attached to any loss or lawsuit involving the corporation. An LLC is owned by its members, but limits the owners’ liability to the amount of capital invested in the business.
Corporate taxes must be filed and paid each year to the state and federal governments. Corporations must report their income to the Internal Revenue Service.
With an LLC, the individuals file taxes, not the company. However, the LLC has more flexibility in that the owners can choose how the entity is taxed. The caveat is “double taxation,” depending on the type of taxation chosen. Double taxation means both the company and its owners are taxed.
An LLC operating as a corporation for tax purposes files a corporate income tax return with the state. If it is a corporation operating as a partnership, the owner(s) must file corporate income taxes. Otherwise, an LLC does not file taxes, passing the tax liability to the owners who have the distributed ownership and income.