Difference Between LLC and Corporation
We now live in a world that’s business-driven. Urban areas globally have skyscrapers and towering structures that house thousands of employees to cater to hundreds of business ventures in scattered locations. If you go to LinkedIn or any career site, you may find various names of companies. You may find trusts, incorporated types, corporations, and LLCs. You may be curious as to what the difference between LLC and corporation is or whether they’re one and the same.
Well, we are, too. So, we did our research, so we can find out what is the difference between LLC and corporation and provide a clear comparison to you, our readers. In this article, we will define what each of the terms means and lay down the difference between LLC and corp in a chart, so you can clearly define their disparities.
Definition of LLC
What is LLC? LLC is an acronym for Limited Liability Corporation. From the looks of it, it may seem that there’s no difference between an LLC and a corporation and, that, LLC is a subcategory of a corporation. However, that is not the case. LLC is a special name for some companies in the United States. It is US-specific, which means you may not find it in other parts of the world. From the term itself, it merges the flow-through pattern of a partner-business or an solo proprietorship and the limited liability of a business-corporation.
However, it is not identified as a corporation by state laws. In a way, it’s a hybrid of both; it’s more flexible than a corporation as it’s subjected to less regulatory rules. It is similar to a partnership because it follows flow-through income taxation, wherein only the income of the investors is taxed.
For these reasons, LLCs have become the predominant form of enterprise in America. LLC owners’ businesses are administered by operating agreements, and as long as these businesses are accomplished lawfully, they can operate freely, either based on the agreements or the state rules. However, each state-government has varied rules, so the LLC has to be well-aware of what they are to remain in the confines of the law. Do you see now what is the difference between an LLC and a corporation? Let’s define, next, what a corporation is.
Definition of Corporation
What is a corporation? A corporation is composed of a group of people who are given authority to act as one unit legally. They are of two charter kinds: if they can have stock issued or if they were built to make a profit. As such, they are either called “for profit” or “not for profit”. If they fit the first type, then they are allowed to offer stock with share or stockholders. If they are of the second, then they may issue non-stock, and acquirers of these non-stocks are referred to as its members.
A corporation may also be classified as either aggregate or sole, depending on their number of owners. The former involves several individuals; the latter is characterized by a single-and-natural person. A natural person means that the owner is not an entity but an actual, living individual.
Corporation registration is done with the state, provincial function, or local government. Its regulation is done by the government. When a corporation is registered, it must have an address, a name, and a representative. Then, it must file articles of corporation to explain the nature of the business, the stock quantity it’s permitted to issue, and its company signatories.
In terms of taxation, they can be classified as either C Corps or S Corps. C corps file corporate taxes based on its earnings. Then, if a portion of those earnings goes to the stockholders, these individuals need to file for the taxes themselves when they withdraw the money. For S corps, the flow-through income taxation is followed.
LLC vs Corporation Comparison Table
Do you get, now, what is the difference between a corporation and an LLC? To further your understanding, below is a table with main differences between the two:
|Basis of Comparison||LLC||Corporation|
|Protection||Limited Liability||Includes Limited Liability|
|Filing and registration||State-based||State-based|
|Taxation||Flow-through||C Corporation: Corporate taxation|
S Corporation: Flow-through
|Salary provision||No obligation to pay owners||Obligated to pay owners with >2% ownership|
Conclusion of the Main Difference Between LLC vs Corporation
Based on their characterizations, were you able to grasp what is the difference between a corporation and an LLC? To reply to the question, what is the difference between LLC and corporation, the differences lay in the salary provision, protection, and ownership rules. The taxation is also dissimilar between an LLC and a C-type. Hopefully, this piece was able to shed light on the variances between these business types.