Here are some distinguishing features:
Limited Liability Company (LLC): A limited liability company is a separate legal entity, apart from its owners, who are called members.. The members have limited personal liability for the debts and actions of the company. A limited liability company can be managed by the members or management can be delegated to one or more managers. Generally, limited liability companies have less formal requirements than corporations and more freedom in the management of the company. A limited liability company is formed by submitting articles of organization for filing
- Extremely popular.
- Suitable for any business.
- It is a hybrid business entity having some characteristics of sole proprietorships, partnerships and corporations.
- Liability protection. Normally the debts of the company do not become the debts of its owners.
- Owned by members, not stockholders.
- Usually managed by one or more managers. It may also be managed by its members directly, without a manager.
- For federal income tax purposes the LLC by default is a pass-through entity, unless the members elect it to be treated as a corporation. An LLC may be treated as a sole proprietorship (the default for a single-member LLC), as a partnership (the default for a multiple-member LLC), as an S corporation, or as a C corporation.
Corporation: A corporation is a separate legal entity apart from the owners, who are the shareholders of the corporation. The shareholders of a corporation have limited personal liability from the debts and actions of the corporation. A corporation is managed by a board of directors who usually delegate management of the day-to-day affairs of the corporation to corporate officers. Shareholders must observe certain corporate formalities, including issuing stock, holding meetings, recording the minutes of the meetings, electing directors and conducting business by resolution. A corporation is recognized as a separate taxpaying entity and is responsible for paying corporate income taxes. A corporation is formed by submitting articles of incorporation for filing.
Click to see the hightlights of each type of corporation
- Suitable for small businesses.
- Liability Protection. Normally the debts of the corporation do not become the debts of the owners.
- No more than 100 stockholders (owners).
- For US Citizens and Permanent Residents only.
- After deducting salaries and other operating expenses, the profits and losses of the corporation pass through directly to its stockholders No double taxation.
- After incorporation, S corporation status must be requested from the IRS by filing form 2553.
- All corporations are C corporations unless S corporation status is requested.
- Suitable for larger businesses.
- Liability Protection. Normally the debts of the corporation do not become the debts of the stockholders.
- Unlimited number of stockholders (owners).
- After deduting salaries and other operating expenses, the profits and losses of the corporation are either accumulated as retained earnings or passed to the stockholders as taxable dividends. The corporation pays tax at C corporation rates and its stockholders pay tax on the dividends received at their applicable individual tax rate. This is known as double taxation.
- Suitable for charitable, educational, religious, scientific, civic and other organizations not geared to profit making. If the corporation is seeking tax-exempt status, certain specific language must be included in the Articles of Incorporation at the time of filing.
- In order to gain federal tax-exempt status, after filing the nonprofit corporation articles in the state, the corporation must submit a separate, detailed application to the Internal Revenue Service.
- Nonprofit corporations may have members, but not stockholders.
- There may be additional state requirements in order to operate a nonprofit corporation. For example, if the corporation intends to solicit contributions from the public, it may be required to register with the state government agencies before doing so.
