What is the difference between an LLC and a corporation?
LLCs and corporations are both business entities that are created by filing formation documents with the state. Both provide their owners with the same type of liability protection: owners are generally not personally responsible for business obligations of either LLCs or corporations. The owners of a corporation are called shareholders.
Is an LLC an S-Corp?
However, an LLC (legal entity) has a choice on what tax identity it wants to have. An LLC can be seen as a sole proprietor / partnership, or as a C-corp, or as an S-corp (there is no true LLC tax entity and so an LLC is seen as one of the traditional business designations instead).
Should you incorporate as a C Corp or an LLC?
Luckily, incorporating as an LLC provides entrepreneurs with flexibility. An LLC may elect to be taxed as Corporation or an C Corporation. While it is an uncommon choice, filing an LLC as a C Corp tax designation does make financial sense for some businesses. Corporations are taxed as a separate legal entity, which can earn its own income.
How does an LLC function like a business?
These LLCs function much more like a traditional business partnership, and the members may not even have formal business titles. An LLC can also be managed by a group of managers. An LLC might choose to be manager-managed if it has members who own part of the business but aren’t involved in running it. LLCs have more minimal recordkeeping rules.
Incorporation was the original way for a company to shield its owners from personal liability and is significantly older than the LLC model. The owners of a corporation are its shareholders. There are two main types of corporations: C corporations and S corporations.
What are the benefits of an LLC over a corporation?
One of the main benefits of an LLC over a Corporation is the fact that the LLC doesn’t pay income taxes. Single-member LLCs pay taxes as though they operate as a sole proprietorship. Multi-member LLCs are taxed as a partnership. However, if the multi-member LLC wants, it can be taxed as a corporation — either an S Corp or C Corp.
How is LLC taxed?
LLC’s can be taxed as a sole proprietorship, partnership, S corporation, or C corporation. Following is a basic explanation of how each of the structures listed above is taxed. C corporations pay corporate income tax on profits. Their shareholders pay personal income taxes on the profits that are paid to them as dividends.
What does it mean when a company is incorporated?
Incorporation means taking a business or sole proprietorship and creating a separate legal entity while simultaneously transferring ownership to shareholders. Why is an LLC NOT a Corporation? An LLC is a “Limited Liability Company” not a “Limited Liability Corporation.” An LLC is not incorporated; it is thus not a corporation.