What Are the Differences Between a LLC Corporation and a Corporation?


Quick Answer

Flexibility in management structure and pass-through taxation are two of the significant differences between limited liability companies and corporations. Corporations follow an established management structure with directors overseeing major business decisions and officers handling daily operations, while LLCs have no set structure. The owners, also called members, of an LLC report the business's income and loss on their personal tax returns. Corporations must pay taxes at the business level and owners also pay taxes on any profits received as dividends.

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Full Answer

Corporations must distribute profits and losses based on each owner's share of the company. LLCs can allocate profit and losses to its members as it sees fit. Both a corporation and an LLC are legal entities separate from its owners, providing limited personal liability for debts or actions of the business. Unlike a corporation, however, an LLC is unable to continue after an owner dies or retires unless continuation is specifically addressed in its operating agreement.

Recording and reporting requirements also differ. An LLC is not required to hold annual meetings, document its meetings or create financial statements. A corporation, on the other hand, must do these things and file financial statements and annual reports with the state in which it is incorporated.

There are certain types of businesses that cannot be formed as limited liability corporations, usually including banks and insurance companies, though these and other LLC regulations vary by state.

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