LLC vs Corporation
Choosing between an LLC and Corporation is one of the most important decisions for your business. This comprehensive guide compares both structures to help you make the right choice.
Quick Decision Helper
Choose LLC If...
- • You want simple tax reporting
- • You prefer flexible management structure
- • You don't plan to seek investors
- • You want pass-through taxation
- • You value operational simplicity
Choose Corporation If...
- • You plan to seek investors or go public
- • You want to reinvest profits in the business
- • You need employee stock options
- • You prefer structured management
- • You want maximum credibility
Detailed Comparison
| Factor | LLC | Corporation |
|---|---|---|
| Formation Complexity | Simple | More Complex |
| Ongoing Compliance | Minimal | Extensive |
| Taxation | Pass-through | Double or S-Corp |
| Management Structure | Flexible | Formal |
| Ownership Restrictions | Few | More Rules |
| Investor Appeal | Limited | High |
| Perpetual Existence | Depends on State | Yes |
Limited Liability Company (LLC)
LLC Overview
An LLC combines the limited liability protection of a corporation with the tax benefits and operational flexibility of a partnership. It's the most popular business structure for small businesses and startups.
✅ LLC Advantages
- • Simple Formation: Articles of Organization and operating agreement
- • Pass-Through Taxation: No double taxation, profits/losses pass to owners
- • Management Flexibility: Member-managed or manager-managed options
- • Fewer Formalities: No required board meetings or annual shareholder meetings
- • Ownership Flexibility: Different classes of membership interests
- • Self-Employment Tax Planning: Potential S-Corp election benefits
❌ LLC Disadvantages
- • Self-Employment Taxes: All profits subject to SE tax (15.3%)
- • Limited Investment Options: Harder to attract investors
- • No Stock Options: Can't offer traditional employee stock options
- • Limited Life: May dissolve when members leave (varies by state)
- • Less Credibility: Some view as less established than corporations
- • State Variations: LLC laws vary significantly between states
Corporation
Corporation Overview
A corporation is a separate legal entity with formal structure, governance requirements, and the ability to raise capital through stock offerings. It's ideal for businesses planning significant growth or seeking investment.
✅ Corporation Advantages
- • Investment Ready: Easy to raise capital and attract investors
- • Stock Options: Can offer employee stock options and benefits
- • Perpetual Existence: Continues regardless of ownership changes
- • Transfer of Ownership: Easy to sell or transfer stock
- • Maximum Credibility: Viewed as most established business structure
- • Retained Earnings: Can retain profits for reinvestment at lower tax rates
❌ Corporation Disadvantages
- • Double Taxation: Corporate profits taxed, then dividends taxed again
- • Complex Formation: Articles of incorporation, bylaws, board resolutions
- • Ongoing Compliance: Board meetings, shareholder meetings, detailed records
- • Rigid Structure: Formal management hierarchy and procedures
- • Higher Costs: More expensive to form and maintain
- • More Regulations: Subject to extensive state and federal regulations
Tax Implications
LLC Taxation
Default (Pass-Through)
- • Profits and losses pass to owners
- • Report on personal tax returns
- • No corporate-level tax
- • Subject to self-employment tax (15.3%)
S-Corp Election Option
- • Reasonable salary subject to SE tax
- • Additional profits avoid SE tax
- • Can save significant self-employment taxes
- • Requires payroll and additional compliance
Corporation Taxation
C-Corporation (Default)
- • Corporate income tax (21% federal)
- • Dividends taxed again to shareholders
- • Can retain earnings for growth
- • More deductions available
S-Corporation Election
- • Pass-through taxation like LLC
- • Avoids double taxation
- • Limited to 100 shareholders
- • Only one class of stock
Management Structure
LLC Management
Member-Managed
All members participate in day-to-day management and decision-making.
- • All members have authority
- • Simple for small businesses
- • No formal board structure
Manager-Managed
Designated managers handle operations while members are passive investors.
- • Professional management
- • Passive investor members
- • More complex structure
Corporate Management
Formal Structure
- • Shareholders: Own the company, elect directors
- • Board of Directors: Oversee major decisions
- • Officers: CEO, CFO, Secretary handle operations
Required Meetings
- • Annual shareholder meetings
- • Regular board meetings
- • Detailed meeting minutes
- • Corporate resolutions for major decisions
Formation Requirements
LLC Formation
Required Documents
- • Articles of Organization
- • Operating Agreement (recommended)
- • EIN from IRS
Filing Requirements
- • File with state business office
- • Registered agent required
- • State filing fee ($50-500)
Ongoing Requirements
- • Annual reports (most states)
- • Registered agent maintenance
- • State-specific compliance
Corporation Formation
Required Documents
- • Articles of Incorporation
- • Corporate Bylaws
- • Board resolutions
- • Stock certificates
- • EIN from IRS
Filing Requirements
- • File with Secretary of State
- • Registered agent required
- • State filing fee ($100-500)
Ongoing Requirements
- • Annual reports
- • Board meetings and minutes
- • Shareholder meetings
- • Corporate record maintenance
Which Is Right for Your Business?
Choose LLC If You Are:
Business Types
- • Small businesses and startups
- • Service-based businesses
- • Real estate investments
- • Consulting and professional services
- • Family businesses
Your Priorities
- • Simple tax reporting
- • Operational flexibility
- • Lower compliance costs
- • Pass-through taxation
- • Quick formation process
Choose Corporation If You Are:
Business Types
- • Technology startups
- • Manufacturing businesses
- • Businesses seeking investment
- • Companies going public
- • Large-scale operations
Your Priorities
- • Raising venture capital
- • Employee stock options
- • Maximum credibility
- • Perpetual existence
- • Retained earnings strategy
Ready to Form Your Business?
Need help deciding or ready to get started? Take our business quiz for personalized recommendations or compare formation services.