Corporations VS LLCs

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Corporations Compared to LLCs

Corporations and LLCs offer many benefits that partnerships and sole proprietorships do not have. Choosing a corporation or an LLC depends on your type of business.  Both are separate legal entities created by a state filing.

Corporations

A C Corporation may not work for small businesses which could results in higher overall tax payments which results in double taxation.

LLCs

LLC has the choice to be taxed as an S corporation.

Liability Protection

Corporations and LLCs offer limited liability protection, where the owners are usually not personally responsible for business debts and liabilities.

Corporations

With a corporation, creditors cannot collect a shareholder’s personal assets, but can collect the shareholder’s dividends.

LLCs

The advantage of an LLC is that in some states, a creditor cannot collect the members’ LLC distributions.

Foreign Ownership

Non U.S. Citizens may own a corporation or LLC in the United States. The procedure for a foreign citizen to form a company in the Nevada is the same as for a US resident. It is not necessary to be a US citizen or to have a green card to own a corporation or limited liability company formed in the United States.

Corporations

Foreign persons can be owners of a C corporation or be any kind of trust, but cannot be a shareholder of a S corporations.

LLCs

Foreign persons can be owners of an LLC.

Taxes

Corporations are required to pay federal, state, and in some cases, local taxes. Most businesses must register with the IRS and state and local revenue agencies, and have a tax ID number or permit.

Corporations

Corporate Tax Treatment. Corporations file taxes separately from their owners. Owners of a corporation only pay taxes on corporate profits paid to them in the form of salaries, bonuses, and dividends, while any additional profits are awarded a corporate tax rate, which is usually lower than a personal income tax rate.

LLCs

In the eyes of the federal government, an LLC is not a separate tax entity, unless the LLC has more than one owner, the business itself is not taxed. Instead, all federal income taxes are passed on to the members of the LLC and are paid through their personal income tax.  Please note that, while the federal government does not tax income on an LLC, some states do, so check with your state’s income tax agency. 

Profits, Losses, and Taxes

Corporations

Unlike sole proprietors and partnerships, corporations pay income tax on their profits. In some cases, corporations are taxed twice – first, when the company makes a profit, and again when dividends are paid to shareholders on their personal tax returns.

LLCs

Unlike shareholders in a corporation, LLCs are not taxed as a separate business entity. Instead, all profits and losses are “passed through” the business to each member of the LLC.  LLC members report profits and losses on their personal federal tax returns, just like the owners of a partnership would.

Raising Money

Which type on entity is best a corporation or LLC, when it comes to raising funds for your business’ financial needs to help start, manage and grow a business?

Corporations

A corporation can go public or sell stock to a large group of people to raise money.

LLCs

Corporate stock may be easier to sell than membership interests in the LLC.

Management Options

 Whether you deside on a corporation or form an LLC for your business, you will need an organized management structure that is accompanied by some formalities. Corporations are more formal in nature, while LLC’s  are more flexible and less formal.

Corporations

A Corporation has a formal three-tier structure of the organization’s management. Which consists of Shareholders who own the business, the Board of Directors who selects officers and makes high level decisions, while Officers run the day to day activities of the business.   If there is more than one shareholder, there must be more than one director.

A corporation can also be operated by a single person in most states, but you should check into you state’s rules for incorporation to see if it is allowed.  If you Incorporating your business as a single owner organization you will still have to fill each seat in the organizational structure of your incorporated business. 

LLCs

LLC Management is done by an agreement between the members; however, Nevada law does not require its members to be managers and allows the parties to define their business relationship through a written contract called and Operating Agreement.

Unlike a corporation, an LLC Management can distribute profits in any manner described in the Operating Agreement regardless of ownership share.