What is the Difference Between a Corporation and an LLC?

Jeremy Laukkonen

Corporations and limited liability companies (LLCs) have a number of things in common, though they have several differences as well. The main difference between a corporation and an LLC is that the corporation is legally recognized as a distinct entity. Corporations are usually taxed like separate financial entities as well, unless certain qualifications are met. There is typically a large difference in the amount of reporting and paperwork between a corporation and an LLC, since an LLC does not require regular board meetings or minutes. The exact differences between a corporation and an LLC can vary from one area to another, though legal status, taxes, and management operations are typically the main areas of distinction.

The exact difference between a LLC and a corporation can vary from one are to the next.
The exact difference between a LLC and a corporation can vary from one are to the next.

Limited liability companies are business entities that are authorized by individual states in the United States. Each state can have its own specific regulations and requirements, so the difference between a corporation and an LLC may be more distinct in one are than another. One of the main defining characteristics of corporations is that they are considered to be separate entities that can continue to exist after their shareholders die or go bankrupt. In some states, an LLC will be dissolved under these circumstances, but other states allow the operation agreement to state otherwise.

The typical default taxation status for an LLC is referred to as pass through, which means that the members of the LLC are taxed personally for their share of the income. This differs from the default setup for a corporation, where the business itself is taxed and the shareholders only pay tax on their personal income. A special entity known as an s-corporation can erase this distinction, since these businesses have pass through income taxation similar to an LLC. In some states the opposite can be true as well, and the members of an LLC can choose to have it taxed like a traditional corporation, s-corp, limited liability partnership (LLP), or other entity.

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Some other main differences between a corporation and an LLC are management structure, record keeping requirements, and overall formality. Corporations are typically required to have executive officers or presidents to oversee day to day operation in addition to boards that govern the overall progress of the business. These boards can be required to hold regular meetings and record minutes of such events in a logbook. Limited liability companies are typically free of these restrictions and able to operate under a variety of different structures.

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