Having a tough time choosing the right legal entity for your business?

You’re not alone. Budding entrepreneurs often get conflicting advice about which business entity they should opt for.

LLC vs. Corporation: Which one is the best?

The truth is that both of these legal business entities have their own advantages and disadvantages. The one that will serve you the best totally depends on the ownership, operational, and taxation needs of you, and your business.

You might have questions like:

What is an LLC? What is a Corporation? What are the major differences between an LLC and a Corporation? And, which one is right for me?

I’ll help you answer these questions and choose the type of business entity that is best for you.

Defining LLCs and Corporations

Let’s start the LLC vs. Corporation discussion by defining what these two business entities are all about.

What is an LLC?

An LLC or a Limited Liability Company is one of the most common legal entity types used by individuals and small business owners due to the flexibility it offers. You can either form a Single-Member LLC or a Multi-Member LLC to conduct business in the United States.

Setting up an LLC offers limited liability protection, minimal compliance requirements, a flexible management structure, and pass-through taxation.

What is a Corporation?

A Corporation, also known as a “C-Corp,” is a legal business entity established by a charter granting certain legal rights, privileges, and liabilities. An individual or a group of people can form a Corporation with a charter from the Secretary of the State.

Forming a Corporation offers business owners infinite growth potential. You can sell stock, attract investors, and have multiple shareholders.

LLC vs. Corporation: Understanding the Differences Based on Various Factors

The best legal entity type for your business will depend on how you plan to establish and run your company.

Before making the LLC vs. Corporation choice, you need to answer a few questions:

  • How many owners and members will your business have?
  • Are you looking for capital investments from outside sources?
  • How do you want your business revenue to be taxed?
  • What are your expansion plans?
  • How much revenue do you expect to make in the first year?
  • Do you want to take a salary from your business?

Once you figure out the answers to these questions, it will be much easier for you to choose the right entity type for your business.

Let me help you understand how LLCs compare to Corporations when it comes to liability protection, management structure, ownership, taxation, and compliance requirements.

LLC vs. Corporation: Liability Protection

Both LLCs and Corporations offer personal liability protection.

Your company becomes a separate legal entity. If it suffers a loss, these business entities will protect your personal assets, such as your house, car, personal bank accounts, from being used to pay off the debts. You will only lose the money that you have invested in your business.

Whether you form an LLC or a Corporation, you can benefit from the same type of liability protection.

LLC vs. Corporation: Business Formation Process

You need to file certain legal documents with the Secretary of the State to form either of these business entities. 

To form an LLC, you need to file Articles of Organization with the state. To establish a Corporation, you need to file Articles of Incorporation. The state filing fee for each of these documents varies from state to state. Corporations will have higher fees than LLCs. We can take care of the filing process for you with our LLC filing and incorporation services. 

The Articles of Incorporation (Corporation) requires that you fill out more information about your business than the Articles of Organization (LLC), and Corporations are required to designate the number of shares that can be issued to the owners, and the minimum value (par value) of the shares.

Along with these, you also need to create a document that clearly defines the roles and responsibilities of all people involved and details about internal management.

For LLCs, this document is called an LLC Operating Agreement while in the case of a Corporation, it is called Corporation Bylaws. These documents are provided for you with our filing service, for free, which otherwise could be expensive to obtain from a lawyer.

LLC vs. Corporation – Which one is better based on their formation processes?

If you want less information about your business to be available to the public, LLCs are a better choice. LLCs also require less legal requirements and paperwork than Corporations do.

However, the state filing process for both LLC and Corporation formation can be tedious and time consuming. Take advantage of our LLC filing and Incorporation packages for hassle-free paperwork and expedited application processing.

LLC vs. Corporation: Management Structure

If you form an LLC, you can either choose to run a Member-Manged LLC, where all members participate in decision-making, or you can run a Manager-Managed LLC, where one appointed manager makes all important decisions for the LLC.

Corporations have a standard management structure.

If you form a Corporation, you need to have:

  • A board of directors that make all major decisions about the company
  • Officers who run the business day-to-day
  • Shareholders who own stock in the company

A Corporation allows you to easily transfer shares from one person to another at any point in time. This makes profit-sharing super easy.

LLC vs. Corporation: Which one is better with regard to management?

It depends.

If you are looking for outside investment, you may prefer to set up a Corporation. However, if you want to fund your business on your own, an LLC may be best for you.

LLC vs. Corporation: Taxation

A Limited Liability Company offers greater flexibility in taxation than a Corporation.

By forming an LLC, you can choose whether you want it to be taxed as a Sole Proprietor (for single-member LLCs), Partnership (for multi-member LLCs), or a Corporation. LLCs offer a pass-through taxation option. 

LLCs can elect how they want to be taxed and treated by the IRS: either as a corporation, partnership, or as part of the owner’s tax return (a disregarded entity).

What is pass-through taxation?

It means that any business profits and losses are passed on to the owners, who report those earnings on their personal income tax returns, the LLC itself does not owe taxes, although it is required to submit a tax return for the LLC every year.

On the other hand, Corporations hardly offer any flexibility with regard to taxes.

In fact, the greatest disadvantage of forming a Corporation is double taxation. A Corporation pays taxes on its profits. When shareholders receive dividends, they also have to pay personal income tax on them.

LLC vs. Corporation – Which one is better from the aspect of taxation?

Business taxes can be complex. It is best to consult an experienced accountant to determine which taxation option is best for your business.

Ready to Set Up Your Legal Business Entity in the United States?

LLC vs. Corporation – Which one should you choose?

Though this question is common to most business owners out there, its answer is unique for each of them.

The right legal entity for you totally depends on the way you want to establish and operate your business.

Whether you choose to form an LLC or a Corporation, GovDocFiling offers an LLC formation package and a Corporation formation package that can make it much easier for you. You can easily register your legal business entity with the state using one, simplified application for both federal and state filings.

Plus, you can benefit from expedited processing for no additional cost. Forming an LLC or a Corporation with us is a lot easier than doing it by yourself manually and much cheaper than having a lawyer or accountant do it for you.

Do you have more questions about which one to choose – LLC vs. Corporation? Take our entity survey or connect with me in the comments below.