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LLC vs Corporation

Updated on May 13, 2024
Article byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

Difference Between LLC and Corporation

LLC means Limited Liability Company, a kind of company in the United States corporate Structure where the entity owners are not personally liable for the Entity’s debt. That can also combine the partnership and sole proprietorship features. In contrast, Corporation is a macro that consists of a group of companies to act as one entity and recognized legally with a wider meaning.

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 Liability 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.
LLC vs Corporation

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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.

Corporations usually have the word ‘Incorporated’ to their end name. Examples include Amazon Inc, Facebook Inc, etc. The owners of the corporation are known as shareholders, and they elect the board of directors responsible for the overall policy-making and decision framework of the Corporation. Popular types are:

  • C Corporation, 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 Income).
  • S Corporation, 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.

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Corporation vs LLC Infographics

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

Corporation vs LLC Infographics

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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 Form has minimal legal formalities and lenient recordkeeping requirements.
  • Corporation results in Double Taxation (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 rates.
  • 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

BasisCorporationLimited Liability Company (LLC)
MeaningIt indicates a business entity registered as per the country’s law (e.g., a Corporation incorporated in India is registered under the Companies Act 2013). It is often denoted with “Inc.” after the company name. (Example: Facebook Inc.)It is a hybrid form of business that provides both partnership and company forms of business privileges. It is often denoted with “LLC” after the company name. (Example: Chrysler LLC)
Ownership StatusThe Owners of a Corporation are called ShareholdersThe owners of an LLC are called Members
Minimum RequirementTwo or more ShareholdersOne or more Members
Legal Formalities and ComplianceIt requires extensive record-keeping and Compliance procedures to fulfill this form of business.Very less in comparison to a corporation
Conduct an Annual General Meeting and Filing of Annual ReportsCorporations are required to conduct Annual General Meeting and file Annual reports with the Appropriate Authority  (For example, In India, its is Registrar of Companies under the Ministry of Corporate Affairs)Conducting AGM is optional, and the annual report is not required to file.
ExistenceIt is a going concern and is not affected by the death or ceasing of any shareholders and continues till perpetuity.Limited Liability Company cannot exist until perpetuity. It has a limited life, and it ceases to exist and needs to be dissolved upon death or bankruptcy of its members or if any member leaves the organization.
SuitabilityIt is a going concern and is not affected by the death or ceasing of any shareholders and continues till perpetuity.LLC members hold a certain percentage of the business entity and it isn’t easy to transfer the same, unlike corporations.
Tax StructureIt results in Double Taxation (C Corp)It provides a Pass-through taxation feature as the income is taxed in the hands of Members.

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.

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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 –

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