LLC vs. Corporation: What Is the Difference?

Choosing between an LLC and a corporation is one of the first decisions when forming a business. Both provide liability protection, but they differ in structure, taxation, and flexibility.

Limited Liability Company (LLC):

Liability protection — Members' personal assets are protected from business debts.

Taxation — Pass-through taxation by default (profits taxed on members' personal returns). Can elect corporate taxation.

Management — Flexible. Can be member-managed or manager-managed.

Formalities — Fewer ongoing requirements. No mandatory board meetings or minutes.

Ownership — Members hold membership interests. No stock.

Best for — Small businesses, solo entrepreneurs, real estate investors, professional services.

Corporation:

Liability protection — Shareholders' personal assets are protected.

C-Corporation taxation — Double taxation. The corporation pays corporate tax, and shareholders pay personal tax on dividends.

S-Corporation taxation — Pass-through taxation, but limited to 100 shareholders, all must be U.S. citizens/residents.

Management — Formal structure with shareholders, board of directors, and officers.

Formalities — Annual meetings, corporate minutes, bylaws, and state filings required.

Ownership — Stock can be issued and traded. Easier to attract investors.

Best for — Businesses seeking investment, planning to go public, or needing multiple classes of stock.

Key considerations:

Raising venture capital typically requires a C-corporation.

An S-corp or LLC taxed as S-corp can save self-employment taxes.

State laws affect formation costs and ongoing fees.

This is legal information, not legal advice.