Know the differences and similarities of LLC vs Corporation so you can decide what is best for your business
When it comes to LLC vs corporation it can be hard to discern which is your better option. There are advantages and disadvantages to both. In the same way, these have similarities and differences.
The major similarity between a corporation and an LLC is that both varyingly protect their owners/ members or shareholders from the business’ debts and lawsuits. It is a misconception that LLCs offer less protection to its members.
Differences Between an LLC VS Corporation
When it comes to differences between an LLC and a corporation, the first big one is how these are formed.
For an LLC, everything starts with one or more business associates. They are the owners of the LLC and are known as “Member” in the Articles of Organization. These members draft an Operating Agreement. These documents, including their EIN, are filed with the state department.
A corporation, on the other hand, is “incorporated” by filing its organization documents with the state, assigning a Board of Directors, and designating its shareholders.
Ownership and the allocation of profit and loss also greatly differ when it comes to LLCs and corporations.
An LLC is considered a “pass-through” business. In this sort of business, the profits and losses are passed through its owners or members. So, if an LLC earns and distributes earnings to its members, the members include this in their returns and pay taxes for it. LLC loss is a reduction of the members’ individual income, which means these individual members pay less to the IRS.
Corporations are taxed as an entity before they are able to distribute dividends (or earnings) to their shareholders. This setup somewhat exposes shareholders to the possibility of double taxation. After all, shareholders need to state their earnings from their corporate shares, which is then also taxed.
Perhaps one of the biggest differences between an LLC and a corporation is the liability of its members or shareholders. LLCs offer a level of protection for its members. However, it is possible for a complainant to go after a member’s properties and funds in order to pay for what is legally owed.
This is not the case for corporations. A corporation can be sued a million times, while its shareholders enjoy carefree freedom. They cannot be pursued by those suing the company. If the corporation can no longer pay off what is owed, it stops there. The shareholders are never obligated to pay anything for the sake of the corporation.
LLC VS Corporation: Which Do You Choose
So, between an LLC and a corporation, you would need to choose what suits you and your partners best. There are advantages to each kind of business. Choose for the long run. You may find some qualities that suit you not but does not really benefit you in the long term. It is better to plan ahead by deciding what you choose: LLC vs corporation