Differences between an LLC and a Corporation

When starting a business, one of the first decisions you need to make is what type of entity to form. There are two main types of business structures: LLCs and corporations. So, which is right for your business? In this blog post, we will discuss the differences between LLCs and corporations and help you decide which is best for you.

Similarities

While there are many similarities between LLCs and corporations, they do have some key differences. For example, both types of entities require legal paperwork to form the business. In addition, both offer limited liability protection for owners so that their personal assets are protected from claims or debts incurred by the business. However, the biggest differentiator between these two structures is taxation.

Differences

1. Taxation

With an LLC, income and losses are passed through to its owners on their personal tax returns. This means that the business does not pay any taxes itself and you do not have to file a separate corporate income tax return. In contrast, corporations are considered separate legal entities from their owners. Therefore, income and losses are taxed at the corporate tax rate on the corporation's tax return. As a result, owners may have to pay both corporate taxes as well as personal taxes on their business income.

2. Ownership rules

Another key difference between LLCs and corporations is ownership rules. With an LLC, members can be added or removed at any time. In contrast, it can be much more difficult to change ownership in corporations. This is because corporations are governed by state and federal corporate charter laws, which require a corporation to have specific procedures in place when adding or removing shareholders from the business.

Ultimately, deciding between an LLC and a corporation comes down to your unique situation. For example, if you are forming a small business with just yourself and one other partner, an LLC is likely the best option. However, if you plan to grow your business by adding more ownership shareholders in the future, then a corporation may be more appropriate.

Summary

In summary, the main differences between LLCs and corporations are how they are taxed and ownership rules. Whether you choose an LLC or corporation depends on your unique business situation.

Need Help?

If you are thinking about starting a new small business and need help deciding between an LLC or corporation, contact our team of experts today. We can help you determine which type of business structure is right for your situation and guide you through the process of forming a new entity.