Limited Liability Companies (LLCs) and corporations both afford limited liability protecting to the owners of the company. This article looks at the similarities and differences between these two business entities.
Similarities Between LLCs and C Corporations
1. As Legal Entities
Both are separate legal entities that are created by a state filing.
2. Both offer the same limited liability protection
The owners of LLCs and C Corporations are typically not personally responsible for the debts and liabilities of the business.
3. Both entities have very few ownership restrictions.
The owners are not required to be US residents and the number of owners is without limitation. The owners are not required to be individuals as with an S corporation. They can be other corporations, LLCs or partnerships, as well as certain trusts.
The ownership, which is stock with corporations or membership interest with LLCs, can be divided into numerous classes.
Differences Between LLCs and C Corporations
The LLC is a pass-through tax entity. This means that the income or loss generated by the business is reflected on the personal income tax return of the owners. „h A C corporation is a separately taxable entity. The profits and loses are taxed directly to the corporation. This can lead to double taxation on dividends that are paid out of corporate profits to the owners.
A corporation requires that certain formalities be followed. The corporation must hold annual meetings of shareholders and directors each year, and meeting minutes must be kept with the corporation¡¦s records. „h LLCs are not required to hold such meetings; however, it is a good idea to document major decisions of the company and hold regular meetings of members.
3. Transfer of Ownership
Transferring stock in a corporation it typically easier than the transfer of ownership with an LLC. Typically, a shareholder of a corporation is not required to get approval of the other shareholders before selling stock. Whereas with an LLC, the usual rule is that the owners must obtain approval of the other owners before ownership can be sold.
The management of an LLC can be by members, in which case the management is much like that of a partnership. If the management of an LLC is by managers, then the management structure closely resembles a corporation.
Recommended Books on LLCs and C Corporations:
- LLC vs. S-Corp vs. C-Corp Explained in 100 Pages or Less
- The LLC and Corporation Start-Up Guide (Quick Start Your Business)
- LLC or Corporation?: How to Choose the Right Form for Your Business
- Business Structures: Forming a Corporation, LLC, Partnership, or Sole Proprietorship (Entrepreneur Magazine’s Legal Guide)
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