Is an LLC a Corporation: Everything You Need to Know
An LLC affords its members with limited liability as they cannot be held personally liable for the company’s debts.4 min read
Is an LLC a Corporation?
Is and LLC a corporation? An LLC, or a limited liability company, operates essentially as a corporation, sole proprietorship, and partnership all in one. An LLC affords its members with limited liability as they cannot be held personally liable for the company’s debts.
Corporation: What Is It?
A corporation is a legal entity operating under the state laws in which the business is incorporated. A corporation, unlike an LLC, is treated as a person for all intents and purposes. Therefore, a corporation can sue and be sued, buy or sell real estate, and even break the law.
Therefore, while an LLC is wholly unique than that of a corporation, keep in mind the similarities and differences, as well as the benefit of filing either an LLC or corporation for your business.
Benefits of an LLC
An LLC is a sole legal entity; and the name you choose for your LLC is the legal name of your company. This means that the name of your company is the name you will use when conducting business. Some benefits of an LLC include:
• Being registered as an LLC can help you gain credibility with potential customers, vendors, partners, and employees.
• An LLC offers protection against personal liability, including personal assets; therefore, an LLC is the preferred business type when liability is an issue, i.e. when the company hires employees.
• Owners will not be personally liable for decisions or actions taken by the LLC.
• When your company expands, seeking funding is a much more straightforward process. It’s much easier to sell an LLC than a DBA, which generally cannot be sold.
Benefits of a Corporation
There are several benefits to incorporating your business, which include:
• A business that is incorporated can file lawsuits and buy/sell property.
• Incorporation even means that the company can commit a crime, i.e. tax fraud or another type of business crime.
• Incorporating is simple. Simply file an application within the specific state.
• All 50 states, including the District of Columbia, recognize both LLCs and corporations.
• A corporation can evade double taxation of the profits and dividends by choosing Subchapter S tax status.
• Corporations can deduct normal business expenses before they apportioning income to owners.
• Corporations can easily transfer ownership through a transfer of securities to the new owner.
• Corporations can operate for an unlimited period of time.
• Corporations can create tax benefits but C corporations might be exposed to double taxation of profits.
• Those businesses set up as S corporations can pass through income to the shareholders.
• The IRS generally taxes corporations at a reduced tax rate than individuals.
• Corporations can issue shares of stock.
• A business that is incorporated can take its company public.
Forming an LLC
LLCs are formed under state laws - which vary state by state - when an individual files the Articles of Organization with the Secretary of State’s office in the state you choose to register. A name availability check can be conducted on the Secretary of State’s website in order to ensure that the name is not currently being used. An LLC business owner is required to report any changes in address, membership, or service and must also file an annual report that includes important business and financial information.
The legal name of an LLC lasts until the business is dissolved. Once an LLC is in existence, the owner has the option of also filing a DBA to conduct business under a name different than the registered LLC business name.
Establishing a Corporation
First, you’ll want to contact the state’s secretary of state that is responsible for registering corporations. If you choose to hire an attorney, you can. However, with a little guidance from various literature, you can do so on your own, which will save you money. Prepare the articles of incorporation, which could cost roughly $80-100 each. Choose a business name, but keep in mind other requirements when choosing a name, including not being able to use words associated with the federal government, i.e. Federal, Reserve, Bank, United States, etc. File a State of Information form (depending on the state). After registering with your respective state, you’ll need to register with the IRS and obtain an Employer Identification Number (EIN).
A corporation will need to create bylaws that specify in detail hot the corporation will be run. Choose a board of directors, draft a shareholder’s agreement, and hold a meeting where you will go over all important decisions regarding the daily operations of the business, including a tax accounting method, appoint officers, incorporate and adopt the bylaws, issue shares of stock, as well as other key topics to be discussed during the meeting. Should your business be issuing shares of stock, you should not open your doors for business until you do so.
If you need additional help learning more about the difference between a corporation and and LLC, or if you are interested in establishing a corporation or LLC, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.