LLC vs Corporation

Article byWallstreetmojo Team
Edited byAshish Kumar Srivastav
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.

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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 directorsBoard Of DirectorsBoard of Directors (BOD) refers to a corporate body comprising a group of elected people who represent the interest of a company’s stockholders. The board forms the top layer of the hierarchy and focuses on ensuring that the company efficiently achieves its goals. read more responsible for the overall policy-making and decision framework of the Corporation. Popular types are:

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Corporation vs LLC Infographics

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

Corporation-vs-LLC-info

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Key Differences

The key differences are as follows –

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 theAn annual report is a document that a corporation publishes for its internal and external stakeholders to describe the company's performance, financial information, and disclosures related to its operations. Over time, these reports have become legal and regulatory requirements.read more annual reportAnnual ReportAn annual report is a document that a corporation publishes for its internal and external stakeholders to describe the company's performance, financial information, and disclosures related to its operations. Over time, these reports have become legal and regulatory requirements.read more 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 perpetuityCompany Cannot Exist Until PerpetuityPerpetuity is the most commonly used in accounting and finance, which means that a business or an individual receives constant cash flows for an indefinite period (like an annuity that pays forever). According to the formula, its present value is calculated by dividing the amount of the continuous cash payment by the yield or interest rate.read more. 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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