Difference between LLC and Corporation

Key Difference: LLC (Limited Liability Company) and corporation both are legal entities with different features and characteristics. A corporation refers to a form of business ownership which is authorized by law and is constituted by one or more persons to act as a single person. A corporation is legally endowed with various rights and duties. LLC also act like Corporations in many ways but primarily differ in liabilities as LLC owners are not liable for any debts and liabilities of LLC and also provides tax efficiency and operational flexibility of a partnership.

LLC (Limited Liability Company) and corporation both are legal entities with different features and characteristics. A corporation refers to a form of business ownership which is authorized by law and is constituted by one or more persons to act as a single person. A corporation is legally endowed with various rights and duties. LLC also act like corporations in many ways but primarily differ in liabilities as LLC owners are not liable for any debts and liabilities of LLC and also provides tax efficiency and operational flexibility of a partnership. A corporation can be described as a legal entity, which is owned by shareholders. It has legal rights and liabilities, and may work for profit or not for profit. In case of profit, the profit is first reinvested in the Corporation and then among the stockholders in the form of dividends, as decided by the president of the Corporation. In a limited company, the liability of the members or subscribers of the company is limited to what they have invested or guaranteed to the company whereas, the limited liability company is a type of legal structure that provides the limited liability and has been formulated by blending characteristics of partnership and corporate structures.

Various retirements, stock option and employee stock purchase plans are only valid for the Corporations. Corporations are subject to hold regular meetings of board of directors and shareholders. The minutes are recorded in written. LLC’s do not require holding such regular meetings. Corporation profits are not subject to Social Security and Medicare taxes whereas LLC’s salaries and profits are subject to self employment taxes. Corporation’s ownership is defined by stocks issued by it whereas any LLC does not issue stock. Choosing between forming a Corporation or LLC is a very important decision which can affect one’s personal liability and also the tax situation.

 

Corporation

LLC

Definition

A legal entity which is separate from its owners

LLC is a type of legal structure that provides the limited liability similar to a corporation and the tax efficiencies and operational flexibility of a partnership

Ownership

Stockholders

Members

Types

subchapter-s corporation, professional corporation

Sole proprietorship, general partnership, limited partnership, family limited partnership

Management

Run by a board of directors

Only Members and managing members of the company.

Suitable for

Large entities

Small businesses

Structure

Members of a corporation have to act in accordance with the corporation's charter. More structured, less flexible

Generally, state law outlines the required governing structure of an LLC.

Liability

The stockholders are not held responsible in case of a fault, the Corporation is.

Limited

Paperwork

A lot of paperwork is required

Not much paperwork is required. 

Taxation

 

Generally one time tax: the profits and losses of the S-corporation "pass-through," to the owners  and Double taxation for C-Corporations

 One time tax: the profits and losses of the LLC "pass-through," to the owners of the LLC.

 

Number of owners

S-corporation may not have more than 100 shareholders whereas in  C-corporation there can be number of shareholders

The LLC can have any number of members, including one.

Steps of formation

Obtain an Employer Identification Number (EIN). Draft and sign the corporate Bylaws. Hold and record initial Board of directors' meeting; Issue shares of stock

Obtain an EIN; Draft and sign LLC Operating Agreement.

Approval to end the entity

To end the corporations approval must be obtained from the shareholders

Members grant approval

Image Courtesy: richfishlegalblog.blogspot.in, expatcpa.com

Most Searched Non-Alcoholic Drinks Most Searched in Education and References
Most Searched in Electronics Most Searched in Food and Drink
Samsung Galaxy S4 Mini vs HTC One X
Hospital vs Clinic
Felony vs Misdemeanor
Analog vs Digital Phone

Comments

Well informative, more so on providing descriptive chart the difference between a Corporation and a LLC.

Add new comment

Plain text

CAPTCHA
This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.