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Compare Corporation vs. Limited Liability Company
Compare |
Corporation |
Limited Liability Company | |
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Incorporate a Business |
Form an LLC |
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When to use? | Own a business, publicly traded company, to take advantage of lower corporate taxes compared to individual income taxes, to deduct medical expenses. | To own real estate. To hold cash for asset protection. To own stock in one's corporations. | |
State filing and filing fees required for creation | Articles of incorporation must be filed with the Secretary of State and necessary filing fees paid. | Articles of organization must be filed with the Secretary of State and necessary filing fees paid. | |
Ongoing state filings and fees | An annual report is due every year. | An annual report is due every year. | |
Length of existence | The entity may live forever without interruption by death of shareholders, directors, or officers. | May designate any period of duration. | |
Administrative requirements and ongoing formalities | To maintain corporate status, ongoing formalities include:
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To maintain LLC status, ongoing formalities include:
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Who manages the business | Managed by shareholder elected directors and officers. | LLCs have an operating agreement that outlines the management of the business. Can be member-managed or manager-managed. | |
Liability protection | Owners typically are not personally responsible for business debts and liabilities. | Owners typically are not personally responsible for business debts and liabilities. | |
Raising capital | May borrow money, issue bonds, sell common and preferred stock, enter into investment contracts | May have any number of investors. | |
Accounting | |||
Taxation | Generally taxed as a "C" corporation. Shareholders are subject to double taxation. No self-employment income tax on distributions. | Generally treated as a partnership or sole proprietoryship. Subject to one level of tax. May be taxed as a "C" or "S" corporation. Distributions may be subject to self-employment income tax. | |
Self employment tax | Salary subject to self employment tax. | Salary subject to self employment tax. | |
Interest transferability | The assets may be sold, transferred, pledged, or mortgaged simply by using stock | Limited transfer of interest - an investment is illiquid since all members must vote to transfer a member’s interest | |
Incorporate a Business |
Form an LLC |
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