Choosing between an LLC and a corporation is one of the most important decisions to make when setting up a business in the United States. Both types of legal entities have advantages and disadvantages that must be weighed in order to make an informed decision. To better understand the differences between LLCs and corporations, this article will provide a comprehensive overview. We will explore what each entity is, the differences and similarities between them, the legal requirements to set up and maintain the entities, the tax implications of forming them, and how local regulations play into the decision process. Finally, we will discuss the importance of seeking counsel from experienced attorneys in order to understand and comply with state and local laws.

What is an LLC?

LLC stands for Limited Liability Company. An LLC is a type of unincorporated business entity which is similar to a corporation in that it is a separate legal entity from its owners. The main difference between an LLC and a corporation is that LLCs are not subject to double taxation and offer a greater degree of flexibility in the way that profits may be divided amongst owners. Additionally, LLCs can be owned by individuals, and do not need to be managed by a separate board of directors.

What is a Corporation?

A corporation is a business or organization that has been incorporated according to the laws of the jurisdiction in which it is formed. Corporations are distinct legal entities that exist independently of their owners. The main difference between LLCs and corporations is that corporations are subject to double taxation, meaning that their profits are subject to corporate and personal income taxes. Additionally, a board of directors is typically responsible for managing a corporation.

Differences and Similarities between LLCs and Corporations

Both LLCs and corporations offer limited liability protection, meaning that the owners of these entities are not personally liable for the debts or actions of the business. Additionally, both entities are separate legal entities from their owners and offer a degree of continuity by remaining in existence even when an owner dies or leaves the business.

The main difference between LLCs and corporations is the way in which the entities are taxed. LLCs are not subject to double taxation, and profits or losses are passed through to the owners, who in turn are taxed on their individual income tax returns. Corporations, however, are subject to double taxation, and both profits and the salaries of the owners are taxed at the corporate and individual levels.

In terms of formation and maintenance, LLCs in many states are simpler and less expensive to set up and maintain than corporations. Generally, LLCs do not need to hold board meetings or keep minutes to maintain their status. Additionally, LLCs offer more flexibility in terms of ownership and profit sharing than corporations.

Legal Requirements for an LLC and Corporation

The legal requirements for an LLC or corporation vary from state to state. Generally, forming an LLC or corporation requires filing official documents with the relevant state agency, such as the Secretary of State. In addition, LLCs may be required to have an operating agreement that outlines the business’s purpose, ownership structure, and profit and loss responsibilities. Corporations may be required to have bylaws that outline the structure, responsibilities, and duties of the board of directors and shareholders.

Tax Implications of LLCs and Corporations

The tax implications of LLCs and corporations also vary from state to state. Generally, LLCs are not subject to double taxation and are taxed like a partnership, where profits or losses are passed through to the owners, who in turn are taxed on their individual income tax returns. Corporations, on the other hand, are subject to double taxation, which means that both profits and salaries of the owners are taxed at the corporate and individual levels.

Local Regulations and Consulting an Attorney

The laws and regulations governing LLCs and corporations in the United States can be complex and vary from state to state. Therefore, it is important to seek counsel from experienced attorneys who understand local regulations in order to make an informed decision. Local regulations can have a major impact on the formation, operation, and taxation of LLCs and corporations.

For business owners in Chicago who are searching for counsel that understand local regulation, UpCounsel is a great option. Whether you need a one-time consult or an entire freelance legal department, UpCounsel’s network of experienced lawyers has you covered. From small businesses to the Fortune 1000, groundbreaking companies of all sizes trust UpCounsel and its attorney community to provide high quality, cost-effective legal services. Access to high quality attorneys on demand, business attorneys have an average of 14 years of experience, profiles of our online attorneys display client ratings and reviews of recent work.

Topics:

LLC,

Corporation,

Attorney