The main difference between an LLC and a Corporation is the legal protection they offer. A corporation can provide limited liability protection which shields members from liability for contracts and debts of the business. An LLC, on the other hand, provides more flexibility and may offer certain tax advantages.

It is important to note, however, that both entities have distinct pros and cons. We recommended you consult a qualified accountant and/or attorney in order to decide which entity is the best fit for your needs.

Legal Differences Between LLCs and Corporations

The concept of a limited liability company is still seen as being relatively “new.” As the offspring of both the corporate and sole proprietorship/partnership forms, their entity was initially acknowledged in the 1970s.

An LLC exhibits the traits of both legal entities as a result of its dual nature. States, however, handle LLCs differently because they are a “new” type of legal entity with traits of both a corporation and a partnership.

Even since the beginning of American history, corporations have existed. Due to this, corporations as a legal body have grown and developed to the point where all laws are now the same. The United States courts have decades of legal precedent to draw from when resolving conflicts and problems with companies. For corporations, this significantly increases legal stability.

Formal Prerequisites for LLC vs. Corporation

An annual shareholder meeting must be held by corporations every year. These specifics are recorded in notes called “company minutes” along with any talks. A corporation must also provide an annual report. This keeps the Secretary of State informed about the business’s current information. The board of directors must vote on a corporate resolution before taking any actions or making any changes to the company.

The record-keeping obligations for LLCs are less stringent than those for corporations. An LLC, for instance, is exempt from having to maintain minutes, hold annual meetings, or have a board of directors. While some states still demand yearly reports from LLCs, others do not. To find out which criteria apply to your LLC entity, contact your local Secretary of State.

Management of LLC vs. Corporation

A flexible management structure is present in an LLC. Any member may serve as the LLC’s manager, and the entity may be run by its members or a team of managers. The LLC may also decide not to distinguish between a business’s owner and manager. The management of an LLC is less formal due to its flexibility, which may make it the right formation for some business owners. 

The management structure of a corporation is significantly more rigid. A corporation must be legally organized and have a board of directors to administer the business and produce profits for the shareholders. Corporate officers are tasked with managing the day-to-day business operations.

Separating the owners from the firm and granting limited liability protection for their assets are two benefits offered by both corporations and limited liability companies, each of which has its own advantages. LLC vs. Inc. How will you decide the legal form to establish your company? In the end, choosing the entity that best supports your objectives is a crucial first step in creating your firm.

Contact KousLaw today to discuss your options.

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