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Compare LLC and Corporation

 

LLC S - Corporation C - Corporation
       
Is limited liability protection offered to the owners? Yes Yes Yes
       
How is each business entity created? Filing LLC Articles of Organization with the state filing office. Filing Articles of Incorporation with the state filing office. Also, a special form has to be filed timely with the IRS. Filing Articles of Incorporation with the state filing office.
       
What other steps are generally required to complete the formation of the business entity?
  • Obtain an EIN;

  • Draft and sign LLC Operating Agreement.

  • Obtain an EIN;

  • Draft and sign the Corporate Bylaws;

  • Hold and record initial Board of Directors' meeting;

  • Issue shares of stock.

 

  • Obtain an EIN;

  • Draft and sign the Corporate Bylaws;

  • Hold and record initial Board of Directors' meeting;

  • Issue shares of stock.

 

       
Which business entity is easier to run? LLC is the easiest to run among the three choices: it is generally not required to keep strict record of owners and management meetings. The S - Corporation has same or similar operating requirements as the C - corporation. The C - Corporation is the most difficult to run among the three choices: beside other things, the C - Corporation is generally required to regularly hold owners' and management's meetings and to keep strict record of those meetings (minutes).
       
How is each business entity being taxed? One time tax: the profits and losses of the LLC "pass-through," to the owners of the LLC (similar with a sole proprietorship or partnership). 

[IRS gives the option, to a multi-member LLC which so elects, to be taxed as a C - Corporation].

One time tax: the profits and losses of the S - Corporation "pass-through," to the owners (similar with a sole proprietorship or partnership). Double taxation: the corporation is taxed first at the corporate tax rate, and then, if dividends are paid to the owners, those dividends are taxed again at the owner's tax bracket.

[While this sounds very discouraging, it could be a tax advantage in certain circumstances. Talk to your tax person].

       
How are the owners called? Members Shareholders Shareholders
       
Any restrictions on the number of owners? No. The LLC can have any number of members, including one. Yes. The S - Corporation may not have more than 100 shareholders. No. The C - Corporation can have any number of shareholders, including one.
       
How is the business entity managed? By the LLC members, or by appointed managers. By the board of directors and corporate officers (for daily operations). By the board of directors and corporate officers (for daily operations).
       
In conclusion, who is choosing this type of business entity? Small to medium size business, who's owners wish to enjoy limited liability protection, "pass-though" tax status, and ease in operating the business. Because of the above-mentioned advantages the LLC is a very popular business structure. Small to medium size business, who's owners wish to enjoy the limited liability protection a corporation has to offer, and the "pass-through" tax status. Medium to large businesses, which wish to have more flexibility in attracting business capital from potential investors in the business. The investors would typically become shareholders of the corporation.
 
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