What is the difference between a corporation and a limited liability company (LLC)?
The two most common business structures in California are corporations and limited liability companies (LLCs). Corporations and LLCs both allow businesses to operate as separate legal entities from their owners, protecting owners’ personal assets from business debts and liabilities. One of the main differences between a corporation and an LLC is the number of owners. Corporations are owned by shareholders, who can be a single person or multiple people. LLCs, on the other hand, can only have one owner. Additionally, in a corporation, ownership is divided into “shares” of stock. LLC owners hold “membership interests.” Another difference between a corporation and an LLC is the way they are taxed. Corporations are taxed twice—once at the corporate level and then again when the profits are distributed to the shareholders. LLCs, however, are “pass through” entities, which means that the business does not pay taxes on its profits. Instead, profits are “passed through” to the owners, who pay taxes on them as part of their individual taxes. Finally, corporations are subject to more formalities and regulations than LLCs. For example, corporations must hold annual meetings and keep detailed minutes of all decisions, while LLCs do not have such formal requirements. In short, corporations and LLCs are both popular business structures in California. However, depending on the number of owners and the desired level of formality and taxation, one may be more suitable than the other for a particular business.
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