What is the difference between a corporation and an LLC?
Now that you're ready to incorporate, you'll need to decide which type of business entity you wish to form: a corporation, or an LLC. Depending on the structure of your business and your personal needs, one may be a better option for you than the other. Both offer personal liability protection as well as some taxation benefits. The list below will help you determine which one is right for you.
Corporation
A corporation is a business, or a similar entity, that has legal protections similar to individuals. Corporations can own property, open bank accounts and conduct business. The corporation's owners have no personal liability for its finances or legal issues. For example, if a corporation files for bankruptcy, its owners are not liable to repay the corporation's debts.
Features:
- Personal liability protection
- Stock issued
- Split income can reduce tax liability
- Double taxation of profits and dividends
- Required annual meetings
LLC
A Limited Liability Company, or LLC, is a business structure that features tax benefits as well as some personal liability protection. When you form an LLC, you separate yourself from your business, which protects your personal assets in the event your company is sued.
Features:
- Personal liability protection
- No stock issued
- No income splitting to reduce tax liability
- Owners claim income and losses on their personal taxes
- Not as much maintenance as a corporation
The information provided here is not intended as legal or financial advice, and should not be construed as such. For legal advice, please contact an attorney; for financial advice, contact a qualified financial service professional.