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Advantages of LLC vs Corporation

Asked by: Rod - 2 June, 2011
https://d25eic0jctudgb.cloudfront.net/images/site/avatars/default.png-f1597c1da25f30f8c1a941405e8391c8 Explain the advantages to an LLC versus a Corporation.
Answered by: Ray Albert - 4 June, 2011
https://d25eic0jctudgb.cloudfront.net/images/site/avatars/194.jpg-630c771619e92bede7e6f696b56767b9 Rod,

To say one has an advantage over another can be inaccurate given a business' (as well as owners') structure, functionality and aspirations. I can, however, explain some of the key differences.

There are many differences between a Corporation and a Limited Liability Company. One major difference lays in the structure of the company to meet the ownership parties' needs. Corporations require annual meetings of it's directors and officers. If you are a sole proprietor or part of a 2 or 3 member partnership, then an LLC becomes an immediate viable option for numerous reasons.

For one, rather than corporate titles, LLC's member roles, entitlements and compensations are decided in an Operating Agreement. In the Corporate structure, titles must be awarded and the company has to write it's by-laws, which is a much more complex task. Many would say an Operating Agreement (mainly for the fact it typically would hold less than 4 members) is easier than the Corporate by-laws, though I would recommend consulting with an attorney either way.

That being said, there is always the issue of taxation. I am not a professional accountant, so while I will offer some knowledge and experience, again, I strongly always recommend consulting your attorney to know what situation will best suit you and your business needs and abilities.

With a Corporation you often face what is commonly referred to as "dual", or "double taxation". Basically put, the corporation is first taxed at the corporate level, then when the dividends are paid to the shareholders those dividends are taxed at the shareholders' personal level. With an LLC, the income of the owner/partners can be "passed-through", meaning the profit of the company can be placed directly as your personal income, therefore only being subject to one taxation.

There is also the option of forming an S-Corporation. For lack of a better word, it is a hybrid of a Corporation and a Limited Liability Company. This allows the business to retain titles and a limited amount of shareholders, at the same time being taxed similarly to the way LLC is taxed (as a pass-though entity). There are some restrictions on ownership and shares that don't make the S-Corp right for everyone; but in some cases it can be the best entity type for their business endeavors.

Keep in mind that another advantage of LLC over Corporation is the fact that LLC is a flexible entity as far as taxation goes ??“? meaning you can elect the LLC to be taxed as S-Corporation or even C-Corporation, if that suits your current business needs (some restrictions do apply).

There are other differences between C-Corps, S-Corps and LLC's that I cannot properly explain without the fullest comprehension and legal jargon. To read some of they other key differences, please click here to read our article of Corporation vs. LLC.

I hope you were able to find this answer to be of some assistance.

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