What is the Difference between a Corporation and an LLC?

A corporation is an entity incorporated under state law.  A corporation generally has shareholders, directors and officers.  A corporation is governed in accordance with its Articles of Incorporation, Code of Regulation’s, By-laws and applicable state law.  A limited liability company (“LLC”) is an entity organized under state law.  An LLC is governed in accordance with its Articles of Organization, Operating Agreement, and applicable state law. 

For state law liability purposes, there is very little difference between a corporation and an LLC.  A corporation and an LLC each create a liability shield to protect the owner's personal assets. 

But there can be significant differences in how a corporation and an LLC are treated for tax purposes.   For tax purposes, a corporation is treated as a taxable entity (a “C” corporation which pays tax on its income) unless it makes an "S" election.  If a corporation makes an "S" election, it is treated as a pass-thru entity (an “S corporation”) which “passes-thru” its income to its shareholders (who then report and pay tax on the income).   To the contrary, an LLC can be treated as a  partnership, a “C” corporation, an “S” corporation, a sole proprietorship or other disregarded entity depending on the type and number of owners, and on what if any elections are filed with the IRS.   A more detailed description of the different tax treatment of sole proprietorships, partnerships and corporations will be contained in a future blog.

Here’s hoping you find this material helpful.  If you like what you read, pass the information and the website to a friend.  If something you read here raises a question, don’t hesitate to call. 

AND ONE MORE THING: Did you know that funds are currently available from the federal government to help employers hire and train new employees?  Employers work with the local One-Stop Center to recruit, screen, hire and train the employees.  Funding is limited, so interested employers need to act promptly.   Give me a call if you have questions about this program.