Difference between LLC and Corporation

ByAnnual Picks Updated on

LLC and Corporation are business entities, S Corp and C Corp are tax classifications.

The main differences between LLC and Corporation are:

1.Ownership
An LLC is directly owned by one or more of its members. A corporation is owned by shareholders. The shareholders appoint a board of directors, which in turn appoints the corporation’s officers.

2.Management

LLC has two options for management structures: Member-managed, or manager-managed. The former allows business owners to run the company, while the latter allows designated non-member managers (or a combination of members and non-members) to make business decisions.

Meanwhile, corporations may have shareholders, a board of directors and officers or executives who influence decisions within the organization. While shareholders are the owners of the company, the board of directors or executives may be responsible for day-to-day decision making. Officers and board directors can also be shareholders.

3.Taxation

For federal tax purposes an LLC can elect how it wants to be taxed with the choices being.

  • sole proprietor for single owner LLC or partnership for multi-owner LLC
  • S corporation if the owners meet the requirements
  • C corporation

Corporation cannot elect to be taxed as a sole proprietorship or partnership, but will be taxed as a C corporation by default or can elect to be taxed as an S corporation, again as long as the owners meet the S requirements. Most states will follow the above federal structure for assessing state level taxes.

4.Formalities

Corporation is subject to legal formalities that LLC is not. For example, a corporation must:

  • Draft corporate bylaws
  • Appoint a board of directors
  • Hold annual meetings and keep records of meeting minutes

An LLC may choose to draft its own bylaws — referred to as an operating agreement — and hold annual meetings, but it is not legally required to do so.

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