What is the difference between a corporation and an LLC?
The primary difference between a Corporation and an Limited Liability Company (LLC) is their taxation structure, type of ownership, and legal responsibilities. A Corporation is owned by shareholders, who are not personally liable for any debts or liabilities of the business. It is subject to double taxation, meaning taxes are applied at both the corporate level and at the individual level when profits are distributed to the shareholders. Corporations have more formalities than LLCs, including having a board of directors, annual meetings and other corporate formalities that must be followed. An LLC is owned by one or more members who have limited liability and are not personally responsible for the debts of the business. An LLC is pass-through taxed, meaning business income is only taxed at the individual level. There are fewer reporting and paperwork requirements for LLCs than for corporations. Another difference between corporations and LLCs is how ownership is transferred. Corporations can issue stock, and transferring stock is a straightforward process. LLCs do not issue stock, and instead, ownership interests are transferred through a “membership interest.” This is done by the member either selling or gifting the membership interest to another. Both corporations and LLCs are legal forms of business formations that are regulated by state law. Depending on the size and purpose of the business, one may be more beneficial than the other. It is always best to speak with a lawyer or tax advisor before deciding which structure is right for your business.
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