LLC vs Corporation: A Comprehensive Guide
Starting a business is a big step for any entrepreneur3 min read
Starting a business is a big step for any entrepreneur. With so many legal details to consider, it is important to understand the distinctions between the two most common business structures. This guide provides a detailed look at the key differences between an LLC and a corporation, and how a business lawyer in Chicago might advise a business owner on which entity is best for their particular situation.
There are several major differences between an LLC and a corporation. Let's take a look at the two structures in depth so that you can make the best decision for your business.
An LLC and a corporation both have their advantages and disadvantages. In general, a corporation is more complex than an LLC, but it can also provide more protection to a business owner. Let's walk through the primary differences to help you make an informed decision.
What Is an LLC?
A limited liability company (LLC) is a type of business entity that offers the owners limited liability protection, the benefit of pass-through taxation, and management flexibility. LLCs are often preferred by small business owners because they are relatively easy to form and operate.
Unlike corporations, which require shareholders and directors, LLCs only require members. Members can be individuals, other LLCs, or corporations. LLCs are separate legal entities, meaning that the owners are not held personally liable for any debts or liabilities incurred by the business.
What Is a Corporation?
A corporation is a business structure that is separate from its owners. It is legally responsible for its own debts and liabilities. Unlike LLCs, corporations have shareholders, a board of directors, and officers. Corporations are subject to specific regulations, including certain reporting and disclosure requirements.
Corporations may either be “S” corporations or “C” corporations. An “S” corporation pays federal and state taxes on its profits, whereas a “C” corporation pays its own income taxes. C corporations may also be eligible for certain tax deductions.
LLC vs Corporation: Key Differences
The main differences between LLCs and corporations are ownership structure, liability protection, and taxation.
LLCs do not have shareholders, but can have members. Owners, also known as members, can include individuals, other LLCs, or corporations. With corporations, there must be shareholders, directors, and officers. All of these individuals are legally responsible for the corporation’s activities.
The primary difference between an LLC and a corporation is that LLCs offer limited liability protection to their owners. This means that the owners are not personally liable for debts and liabilities incurred by the business. Corporations provide the same level of protection to their owners, but they also offer additional protections, such as personal liability protection from business-related lawsuits.
LLCs are taxed as “pass-through” entities which means that the owners pay taxes on the company’s profits as part of their individual returns. Corporations are subject to double taxation, which means that the corporation must file and pay taxes on its profits, and the shareholders must also pay taxes on dividends.
Which Structure Should You Choose?
Choosing the right business structure is an important decision. To ensure that you make the best choice for your business, it is important to consult with a business lawyer in Chicago. An experienced business attorney can help you understand the differences between an LLC and a corporation and make sure that you are in compliance with local regulations.