A corporation (Inc.) is one of the first types of business entities ever formed in the United States. A limited liability company (LLC) has only been around since 1977 when Wyoming became the first state to allow LLC formation. LLCs have some of the features of a corporation such as limited liability protection, but they also have the operational flexibility of a partnership or a sole proprietorship.
A corporation is taxed twice: at the business level and when dividends are given to shareholders who are then required to pay taxes on dividends received. Members of an LLC are allowed to “pass through” their share of the company’s profits to their personal income tax return. An LLC is only taxed once as a business.
Corporations are required to maintain a ledger, voting records of shareholders and directors, and hold at least one meeting per year. An LLC is not required to hold an annual meeting or create financial statements that detail the company’s financial status.
Corporations have a set structure consisting of shareholders, directors, officers, and employees. Unlike an LLC, owners (shareholders) of a corporation do not participate in managing the company’s daily activities – these are managed by the officers. The directors are responsible for increasing shareholder profits and allocating the company’s resources.
In an LLC, members of the company can manage daily affairs, or they can hire non-member managers. This flexibility allows the owners of the LLC to participate in managing the company.
A corporation can issue stock to raise funds and go public, so venture capitalists often choose to do business with a corporation. An LLC does not have this option, which limits its
ability to expand the company’s operations.
Corporations continue to exist regardless of who owns the company at any given point. Shares of a corporation may be bought and sold without interrupting the company’s operations. An LLC may automatically dissolve if a member of the company withdraws or decides to sell their interest in the business.
Learn about Millan & Company’s business incorporation services or call 512-479-6819.