| A limited liability corporation is what many refer to | | | | member managed structure. This gets rid of the |
| when they are inquiring about the LLC. An LLC offers | | | | central and second level which provides for less |
| small business owners the same benefits of a | | | | paperwork and governance maintenance. The |
| corporation plus more. Compare the two here: | | | | downside here is that you must trust all members as |
| LIMITED LIABILITY | | | | they will each have authority to act on behalf of the |
| Many business owners are trying to decide between | | | | business. |
| an LLC and a corporation. Both offer owners of the | | | | TAXATION |
| business limited liability. Corporation entities, however, | | | | A huge benefit of an LLC is that it automatically |
| are required to hold certain meetings and maintain | | | | qualifies for a single layer of taxation (called pass |
| paperwork formalities. The LLC offers the ability to | | | | through taxation) without requiring the business or its |
| run a business without additional formalities. | | | | owners to meet any conditions or requirements. |
| OWNERSHIP | | | | The corporation's default structure results in double |
| The limited liability company issues membership units | | | | taxation which can have a major impact on the |
| and its owners are called members. The corporation | | | | bottom line profits. The LLC also allows for it to elect |
| issues shares of stock and the owners are called | | | | to be taxed as a corporation which is nice because it |
| shareholders. In most cases, both types provide a | | | | offers the option. In some cases, it may be more |
| similar ownership structure. The difference is that the | | | | beneficial to have a corporation structure. Check with |
| LLC allows a lot more flexibility if the owners of the | | | | your accountant. |
| business wanted to customize their ownership rights | | | | Both the limited liability company and the corporation |
| and obligations among members. | | | | allow for the business to elect S corporation taxation |
| This flexibility is attractive to small businesses | | | | if the owners of the business and the business itself |
| because it allows a business to be operated based on | | | | meet the laundry list of S corporation requirements. S |
| the circumstances of the personalities and desires of | | | | corporation taxation is another form of pass through |
| the particular business owners and not under a one | | | | similar to what the LLC gets automatically. |
| size fits all structure mandated by the laws. For | | | | In summary, the LLC offers more tax options than |
| example, two members can own the same number | | | | the corporation which provides business owners with |
| of units, but one of them can get more profits than | | | | more choices to choose which is most advantageous |
| the other. | | | | to their business. |
| GOVERNANCE | | | | OTHER |
| Traditionally, while corporate statutes have explicit | | | | Fees for corporations can sometimes be based on |
| provisions regarding limited liability, corporation | | | | the # of shares and so if you plan on having a large |
| shareholders are generally required to hold an annual | | | | number, your fees could be significant. LLC |
| meeting and elect a Board of Directors each year. | | | | maintenance fees are usually minimal in most states |
| The Board is responsible for management of the | | | | (there are exceptions) and do not vary with the |
| business while shareholders in their capacity as | | | | number of membership units issues. |
| shareholders have no such authority. | | | | If your business plans on going public, you must be a |
| The limited liability company offers an option for a | | | | corporation as there is not method to sell |
| manager managed governance structure which is a | | | | membership units on NASDAQ or the NYSE yet. Also, |
| similar centralized management structure as the | | | | if you plan on raising capital by taking in a venture |
| corporation. Instead of a Board of Directors, the | | | | capital investor, the investor will likely require you be |
| governing body is called the Board of Managers. The | | | | a corporation. |
| LLC statutes do not require annual meetings and | | | | Otherwise, the LLC usually offers the typical small |
| elections and allow for the company to make its own | | | | business owner with the most benefits and the |
| rules in how and how often managers are elected. | | | | easiest type of legal entity to operate. Both offer |
| In addition, a limited liability corporation can have a | | | | limited liability. Corporation entities require a bit more |
| much simpler structure and have its members all be | | | | when it comes to starting, structuring and operating |
| managers and operators of the business. This is a | | | | a business. |