What is the difference between a corporation and a limited liability company (LLC)?
A corporation and a limited liability company (LLC) are both types of business entities in Texas, but they differ in important ways. A corporation is a separate legal entity from its owners; the owners, or shareholders, of the corporation are not liable for the corporation’s debts or other obligations. This means that any losses the corporation incurs due lack of success or other issue cannot be claimed by its shareholders. This type of business formation is attractive because it provides the shareholders with a layer of protection from any financial risks that the corporation might take. On the other hand, an LLC is a type of business structure in which the owners, or members, are protected from any legal liability associated with the LLC. Unlike a corporation, the members of an LLC are only responsible for the debts and other obligations of the LLC to the extent of their investment. Furthermore, the owners of an LLC have the option of choosing how to be taxed—either as a corporation or as a partnership—while a corporation can only be taxed one way. Overall, while there are similarities between a corporation and an LLC, there are also many key differences. Corporations provide its shareholders with protection from any liability, but its members can be taxed more than one way. An LLC offers greater protection to its members from any financial risks the company might take, but the members cannot benefit from the same level of protection that a corporation provides. Understanding the differences between a corporation and an LLC is key when deciding which type of business structure is best for a business in Texas.
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