Difference Between LLC and Corporation

Choosing the right form of business is one of the many important decisions that are required to be taken by the Entrepreneur. The unique form of businesses is Sole Proprietorship, Partnership, Corporation, LLC, etc. These different forms offer their benefits and shortcomings, which must be assessed before a decision is made.

What is a Limited Liability Company (LLC)?

Limited Liability Company (LLC) is a new-age form of business that combines the privileges of both a partnership firm and a company form of business. This form of business limits the liability of the members and separates the debts held by the business. In other words, members of an LLC aren’t held personally liable for the business’s debts.

  • Limited LiabilityLimited LiabilityLimited liability refers to that legal structure where the owners’ or investors’ personal assets are not at stake. Their accountability for business loss or debt doesn’t exceed their capital investment in the company. It is applicable in partnership firms and limited liability companies.read more Company usually has ‘LLC’ to its end name. Examples include Chrysler LLC etc. LLC can begin its operation with a minimum of a single member, and there is no limit on the maximum number of members. Rules and regulations about LLC depend upon the country of incorporation, and as such, there is no uniformity in the same.LLC is a good form for small-scale and early-stage startups with minimal legal requirements and fast incorporation benefits. LLC is run by the Board of Directors, which its Members appointed under its Memorandum of Association and Articles of Association.

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What is a Corporation?

A corporation is a type of Legal Entity having a different legal status which is different from its owners and is a more suitable form of business for Large Enterprises. It is an extensive, complicated form of business as it requires a lot of record-keeping about accounting, taxation, and compliance formalities.

  • C CorporationC CorporationAccording to US tax laws, any corporation that is not a S corporation is considered a C corporation, which has a different legal status and is taxed accordingly. It has its own articles of incorporation that defines its activities and is held by the shareholders, while its liability is limited.read more, also known as C Corps, is a separate taxpaying legal entity. These entities file their separate income tax returns, and their shareholders’ income is subject to Double Taxation. (Double Taxation means that firstly the Income earned by a C Corp is taxed at the rates applicable to it as per the jurisdiction in which it is operating. Then dividends distributed to shareholders are also taxed as per the Tax rates applicable Personal IncomePersonal IncomePersonal income refers to the total earnings of the individuals and households of a nation through multiple sources such as salary, wages, business profits, bonus, investment returns, dividends, rental receipts, employer contribution in provident or pension funds, etc.read more).S CorporationS CorporationS corporation refers to the special status entity exempted from paying corporate tax, which allows shareholders to be taxed only once when they receive the benefits by follow-through taxation, thereby avoiding double taxation at the corporate level under a special chapter of IRS so that all the rules specified in the chapter shall be complied with.read more, also known as S Corps, enjoys the benefits of Pass-through taxation, which implies that all the Income and expenditure, deductions, and any credits are the direct responsibility of its Shareholders. As such, this form is not subject to Double Taxation. It restricts the maximum number of shareholders to 100.

Corporation vs LLC Infographics

Let’s see the top differences between corporations vs LLC.

Key Differences

The key differences are as follows –

  • The corporation form of business involves stringent legal formalities and record-keeping, which has many compliance costs, then LLC Full FormLLC Full FormLLC stands for Limited Liability Company. A Limited Liability Company is a combination of partnership or sole proprietorship and a corporation and has emerged in the United States, in which the owners’ or investors’ liability is limited by the amount of stock they own or by any other defined means.read more has minimal legal formalities and lenient recordkeepingRecordkeepingRecordkeeping is a basic accounting stage that teaches us how to keep track of monetary business transactions with the goal of keeping a permanent record of all transactions, knowing the correct picture of assets-liabilities, profits and losses, etc., keeping control of expenses with the goal of minimizing expenses, and having important information for legal and tax purposes.read more requirements.Corporation results in Double TaxationDouble TaxationDouble Taxation is a situation wherein a tax is levied twice on the same source of income. It usually occurs when the same income is taxed both at corporate as well as at the individual level.read more (except in case of S Corp, which suffers from other limitations in terms of the maximum number of members etc.) whereas LLC offers pass-through taxation benefit, which means the income of LLC is taxed as per the personal tax rates applicable to its members instead of corporate tax ratesCorporate Tax RatesCorporate tax is a tax levied by the government on the profits earned by a company at a fixed rate each year and is calculated in accordance with specific tax regulations.read more.A corporation is an ideal choice of big business with listing ambition and offers the opportunity to tap funding from varied sources; however, LLC is a good format for small businesses, but it results in limited further growth and expansion avenues.

Corporation vs LLC Comparative Table

Conclusion

Both forms of business offer their unique benefits along with certain similarities. Choosing one form over the other depends upon the entrepreneur as all the legal formalities before and after the business setup lies in the form itself. Cost-benefit must be done before choosing between the two to ensure business goals are achieved in the best possible manner.

This has been a guide to LLC vs Corporation. Here we discuss the top differences between them and infographics and a comparative table. You may also have a look at the following articles –

  • Going Concern AssumptionShares vs DebenturesDirector vs Executive DirectorPartnership vs Sole Proprietorship