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LLC vs Corporation

Should you form an LLC or incorporate your new business? An LLC and a corporation share several similarities, but they also differ in areas such as taxes, ownership, management, liability protection, and ongoing requirements. Below, we explain the main similarities and differences between these two common business structures so you can better understand which option may fit your business.
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LLC and Corporation Similarities

An LLC and a corporation are both formal business structures created under state law. Both can separate the business from its owners and provide a legal framework for operating the company.

Both LLCs and corporations are formed by filing documents with the state. An LLC generally files Articles of Organization or a similar document, while a corporation generally files Articles of Incorporation. 

The filing requirements, fees, processing times, and available filing methods vary by state. 

Both LLCs and corporations are formed by filing documents with the state. An LLC generally files Articles of Organization or a similar document, while a corporation generally files Articles of Incorporation. 

The filing requirements, fees, processing times, and available filing methods vary by state. 

LLCs and corporations generally need a registered agent in the state where they are formed. 

A registered agent receives official correspondence, legal notices, and other documents on behalf of the business. The agent must meet the requirements set by the state. 

Both LLCs and corporations have ongoing compliance requirements. 

Depending on the state, your business may need to file annual or periodic reports, maintain a registered agent, pay state fees, renew licenses, and keep business information updated. 

Both LLCs and corporations may have federal tax filing responsibilities. 

The tax treatment depends on the entity type, number of owners, tax elections, income, and other factors. Federal and state tax rules should be reviewed based on your specific business circumstances. 

Differences Between LLCs and Corporations

To decide between an LLC or corporation, it is important to understand how the two structures differ. The biggest differences include tax treatment, ownership, management, creditor protections, and corporate formalities.

Tax Election Options

LLCs can have several federal tax classification options. 

A single-member LLC is generally treated as a disregarded entity for federal income tax purposes unless it elects corporate treatment. A multi-member LLC is generally treated as a partnership unless it makes another tax election. 

Corporations are generally treated as C corporations for federal tax purposes unless they qualify for and elect S corporation status. 

The tax treatment that applies to your business can affect how income is reported and how taxes are paid.

Partnership or Sole Proprietorship Tax Treatment

A single-member LLC is generally treated as a disregarded entity for federal income tax purposes. Business income and expenses are generally reported on the owner’s federal tax return.

A multi-member LLC is generally treated as a partnership unless the LLC elects to be taxed as a corporation.

This can make LLC taxation different from the standard corporate tax structure.

C Corporation Tax Treatment

A C corporation is generally treated as a separate taxpayer for federal income tax purposes.

The corporation files its own federal income tax return and pays applicable corporate taxes. Shareholders may also report income received from the corporation, such as dividends.

Because of this structure, business owners should understand how corporate and individual tax obligations can interact.

S Corporation Tax Treatment

An eligible corporation can elect S corporation status for federal tax purposes.

S corporations generally use pass-through taxation, meaning income and certain other tax items generally pass through to shareholders rather than being taxed at the corporate level in the same way as a C corporation.

Eligibility requirements apply, so not every business can make an S corporation election.

Business Ownership

The owners of an LLC are called members. Members hold ownership interests in the company.

An LLC can have one member or multiple members. The operating agreement can establish how ownership, voting rights, profits, and responsibilities are handled.

The owners of a corporation are called shareholders. Shareholders own shares of corporate stock.

Stock can generally be transferred more easily than LLC membership interests, although corporate documents and applicable law may place restrictions on transfers.

Company Management Structure

Corporations generally have a formal management structure.

Shareholders elect a board of directors. The board oversees major company decisions and may appoint officers such as a president, secretary, or treasurer to handle business operations.

LLCs generally offer more flexibility.

An LLC can be member-managed, where the owners manage the company directly, or manager-managed, where selected managers handle daily operations.

Creditor Protections

Both structures can provide separation between the business and its owners.

For an LLC, state law may provide protections concerning a member’s ownership interest when that member has personal creditors.

Corporations use shares of stock to represent ownership. The rights of creditors can depend on the type of debt, the owner’s interest, and the laws of the state.

Creditor protection rules can vary significantly between states, so the rules where your company is formed should be reviewed carefully.

Corporate Formalities

Corporations generally have more formal requirements for maintaining the company.

A corporation may need to maintain bylaws, shareholder records, board records, meeting minutes, stock records, and other corporate documents.

LLCs generally have fewer formal governance requirements. An operating agreement can establish how the LLC will be managed and how members will make important decisions.

Both structures still need to maintain proper records and follow applicable state requirements.

Business Name

  • An LLC and corporation may also use different designations in their legal names.
  • An LLC may use terms such as "LLC" or "L.L.C." depending on state rules.
  • A corporation may use terms such as "Inc.," "Corporation," or "Corp."
Before filing, check your state's naming requirements and confirm that your preferred business name is available.

Need Help Setting Up Your Business?

Choosing between an LLC and corporation is only the beginning. After selecting your structure, you may need to complete formation filings, obtain an EIN, appoint a registered agent, establish a business address, and manage ongoing state requirements.
RegisterMyBizNow provides business formation and compliance services to help you handle these important steps.
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Frequently Asked Questions

Everything you need to know about setting up your limited liability company.

An LLC is owned by members, while a corporation is owned by shareholders. LLCs generally offer more flexibility in management, while corporations typically use a formal structure involving directors and officers.

LLC refers to a Limited Liability Company. “Inc.” generally indicates a corporation. They are separate business structures with different ownership, management, and compliance requirements.

An LLC can have different federal tax classifications depending on its ownership and elections. A corporation is generally taxed as a C corporation unless it qualifies for and elects S corporation treatment.

An EIN number for business is a federal tax identification number used to identify a business for federal tax and other business purposes.

An LLC is a state-created business entity that can have different federal tax classifications. A C corporation is generally treated as a separate taxpayer for federal income tax purposes.

There is no single structure that works for every small business. Your choice can depend on ownership, taxes, management, investment plans, state requirements, and future business goals.

Generally, yes. Both structures can separate business liabilities from the personal assets of their owners. However, liability protection has limits.

LLC owners are called members and hold membership interests. Corporation owners are called shareholders and hold shares of stock.

Yes. An LLC can have multiple members. The operating agreement can establish ownership percentages, voting rights, profit distribution, and management responsibilities.

Yes. A corporation can have multiple shareholders who own shares of corporate stock.

LLCs generally offer more flexibility in management. Corporations typically use a formal structure involving shareholders, directors, and officers.

Many states require both LLCs and corporations to maintain a registered agent. Requirements vary by state.

Yes. An LLC may elect corporate tax treatment under federal tax rules if it meets the applicable requirements.

Depending on state law, an LLC may be able to convert to a corporation or reorganize its business structure. The process varies by state.

Consider ownership, management, tax treatment, liability protection, investment plans, formation costs, state requirements, and your long-term business goals.

Yes. RegisterMyBizNow provides LLC formation, corporation formation, EIN services, registered agent services, business address services, annual report filing, and other business services.