| Both the LLC and corporation are legal entities that | | | | standard structure but does have the flexibility to |
| provide liability protection for their owners. While the | | | | customize it if needed without having to create multiple |
| corporation has been around longer, the limited liability | | | | classes of ownership. |
| company was created to offer the same level of | | | | Accordingly, an LLC is more attractive when it comes |
| protection. However, an LLC is designed specifically to | | | | to bringing in investment capital or services partners |
| cater toward the small business owner. It offers the | | | | because it offers more options to address specific |
| same liability protection as a corporation but allows a | | | | business situations. |
| much more simple operational structure with a lesser | | | | LLC v. Corporation - MANAGEMENT STRUCTURE |
| number of formalities. | | | | In addition, a limited liability company can have a very |
| LLC v. Corporation - TAX MATTERS | | | | simple single layer of management (known as |
| The limited liability company offers more tax choices | | | | member-managed) or the management structure can |
| than a corporation. Owners of an LLC can elect for | | | | be structured with a central governing body (manager |
| profits to be taxed pursuant to a pass through | | | | managed). |
| structure (single layer of taxation) or pursuant to a C | | | | When it comes to operations, the LLC is not required |
| corporation (double taxation) or S corporation structure | | | | to meet the same level of formalities and paperwork |
| (single taxation but with many requirements and | | | | as a corporation. |
| ongoing compliance requirements). | | | | The corporation laws generally impose a set |
| The corporation only has the choice of C corporation | | | | management structure for a corporation which |
| or S corporation taxation. Small business owners many | | | | requires a Board of Directors as a central body of |
| times prefer the LLC pass through taxation because it | | | | management. In addition, in most states, there are |
| allows them to avoid double taxation of profits and in | | | | required meetings and certain governance documents |
| many cases be able to take business losses to | | | | that must be entered into each year. |
| reduce taxes from other income WITHOUT having to | | | | While it is still recommended that an LLC have some |
| worry about meeting a laundry list of S corporation | | | | simple governance paperwork to document major |
| requirements. | | | | business decisions, it is comforting to know that the |
| While the S corporation structure is available to both | | | | laws do not require it for the legal entity to qualify as |
| types of entities, it only allows a certain # of owners, | | | | an LLC and get LLC benefits. |
| all owners must be persons (so no entities) and US or | | | | In deciding LLC or corporation, the LLC offers the |
| permanent residents of the United States. There are | | | | same management structure imposed upon for a |
| other requirements as well so check with your | | | | standard corporation but also allows for a much |
| accountant for the specific details. | | | | simpler one or a more complex one if needed to |
| As a business evolves, things change and with an S | | | | protect investors or the business. |
| corporation tax status, you always need to be on top | | | | SUMMARY |
| of the latest S corporation requirements. The failure to | | | | Given the simplicity and flexibility of the limited liability |
| meet a requirement, even if accidental, can result in | | | | company, the LLC was designed to offer all the |
| disastrous tax liability and penalties. | | | | benefits of a corporation but without the |
| The S corporation can have some tax benefits over | | | | disadvantages. As a result, the number of LLC |
| the standard pass through when it comes to self | | | | formations each year greatly surpass incorporations |
| employment. In these cases, you have the option of S | | | | when it comes to small businesses. |
| corporation taxation with either the LLC or corporation. | | | | However, there are some situations where the |
| LLC v. Corporation - OWNERSHIP STRUCTURE | | | | corporation may be the better entity choice. If you plan |
| COMPARISON | | | | on taking your business public with an initial public |
| An LLC also gives an LLC business much more | | | | offering, you should use a corporation. Also, if your |
| flexibility when it comes to ownership structure. The | | | | business requires professional company investors such |
| LLC laws allow for the company to tailor what each | | | | as venture capitalists, the venture capitalists will |
| owner gets in terms of voting control and distributions. | | | | generally require that your business be a corporation. |
| The corporation has a set ownership structure. | | | | As noted above, the decision of LLC or corporation |
| Ownership is defined by a share of stock and each | | | | depends on your specific situation and the best person |
| share of stock provides a set right when it comes to | | | | to advise you is a competent attorney after having |
| voting and profits rights. The LLC can choose this | | | | met with you to discuss your particular circumstances. |