Corporation Vs LLC

What are the Differences between a corporation and an LLC…

Both corporate entities are excellent choices for business owners looking to minimize their personal liability and build greater credibility. Each entity offers distinct tax and business advantages. Choosing the right one depends on the specific needs of the business. Corporations offer:

  • Personal liability
  • Tax savings
  • Increased opportunities for raising capital
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Corporations

Corporations are required to perform certain formalities such as holding annual meetings and keeping detailed corporate records (minutes), however, corporate meetings and records can be held and kept anywhere in the world.

“C” Corporation

  • Personal liability protection for owners
  • Taxed at corporate and individual level
  • Formal meetings and corporate minutes
  • No membership restrictions
  • Annual state reports

“S” Corporation

  • Personal liability protection for owners
  • Income/loss passed directly to shareholders
  • Formal meetings and corporate minutes
  • Membership restricted to 100 shareholders
  • Annual state reports

Limited Liability Companies (LLC)

The LLC offers the same personal liability protection as a corporation, but with fewer of the corporate formalities.

  • The LLC typically are not required to hold formal meetings or keep detailed corporate minutes
  • Can offer great tax flexibility
  • Income/loss passed directly to members
  • Can option to be taxed as either a traditional corporation “C” or “S” or as a “pass-through” entity and file a partnership return if they have two or more members
  • Personal liability protection for owners
  • No membership restrictions

Note: In the state of Delaware the maintenance on a corporation with authorized stock of 1500 shares at no par value is only $125.00 as opposed to an LLC which is $250.00 per year.

If you are the only member of the LLC, by IRS standards you are considered a Single-Member Limited Liability Company and cannot file a partnership tax return with the IRS.

Unless you file the LLC with the IRS as either a “C” Corporation or an “S” Corporation, you will initially be classified as a disregarded entity for the purposes of filing a federal tax return and must file a Schedule C on your personal tax return; same as a sole proprietor.