The LLC and the corporation are the two competing options when it comes to deciding on a legal entity to run a business. Both offer the same level of personal asset protection for business owners.

Although the corporation has been around longer and therefore has a longer history of legal enforcement of its liability protection, LLC protection provisions are based on the same principles and language of corporate statutes. What this means is that the courts will apply the same precedence by analogy when dealing with limited liability companies.

Management

A corporation must have a central body of management structure. This is achieved with a Board of Directors. Each corporation has a Board and its members are elected by the shareholders to serve terms. The Board of Directors has the authority to manage the company. In general, the Board will hire staff to run day-to-day operations based on general decisions agreed upon by the Board. Shareholders in their capacity as shareholders do not have management authority.

The LLC is a flexible shell when it comes to management. There are no required structures and no central management body is required. A limited liability company can be managed by members: here, the owners (members) have management authority by virtue of being members. However, this entity can also be set up similar to a public limited company and can create a Board of Directors as a management authority. In short, an LLC can start with a blank slate when it comes to governance structures and can define how it wants to be governed based on specific circumstances.

property

Both entities issue a property unit to their owners. For a corporation, shares are issued while membership units are granted by a limited liability company. For a corporation, each share must represent an identical unit of ownership. For an LLC, the option exists to define different rights and obligations for members separate and apart from the membership unit. Corporate shares can go public if the company becomes large enough to want to go public. There is no option for the public markets of an LLC. It is more suitable for private companies.

Management structure options

One third of the benefits of an LLC is that it is a flexible entity in deciding how the business will be run. Members of a limited liability company can choose between two simple management structures: (i) managed by members or (ii) managed by managers. The laws provide this benefit by allowing members great flexibility in deciding how they want the limited liability company’s business to be run and what rules to impose on the business in regards to governance and management.

Paperwork

The corporation laws of each state generally require a corporation to hold certain meetings and document corporate decisions with the votes and resolutions of the shareholders or directors. The limited liability company is not legally required to maintain as much paperwork or hold mandatory meetings, but it is always a good idea to be involved in managing and keeping records. Still, busy business owners prefer it because they can focus more on running the business without worrying about a lot of paperwork or maintenance.

Tax Affairs

The limited liability company outperforms the corporation when it comes to taxes. This is because the IRS allows you to pay taxes however you want. Automatically qualifies for rollover, single tax layer, but you can also choose to be taxed as a C corporation or S corporation. The default corporation is double taxed, which means profits are taxed twice. There is no automatic qualification of a single tax structure, but there is a limited option to elect S corporation status if a corporation can meet and continue to maintain a long list of qualifications and limitations.

In essence, the LLC is more of a small business vehicle, while the corporation is for larger companies with a larger investor base.