Less Formal Paperwork: Corporations are typically required to keep detailed records, including meeting minutes, bylaws, and stock ledgers. LLCs have much simpler record-keeping requirements.
No Mandatory Meetings: Corporations must hold regular board of directors and shareholder meetings. LLCs are not legally required to hold these formal meetings, which saves time and administrative hassle.
Flexible Management: An LLC can be managed directly by its owners (member-managed) or by designated managers (manager-managed). This flexibility allows the business to be run in a way that best suits the owners, without the rigid structure of a corporate board.
Simpler Profit Distribution: Distributing profits in an LLC is straightforward. Owners can decide how to split profits, and it doesn't have to be based on ownership percentage. Corporations have stricter rules for issuing dividends to shareholders.
An S-Corp is not a business structure, but a tax classification an LLC can choose.
How it Works: An LLC files paperwork with the IRS to be taxed as an S corp.
Primary Benefit (Tax Savings): The owner must be paid a "reasonable salary" as an employee, which is subject to self-employment taxes. Any remaining profits can be taken as distributions (dividends), which are not subject to self-employment taxes. This can lead to significant tax savings.
Requirements: To qualify, the LLC must be U.S.-based, have 100 or fewer members (who must be individuals, not other companies), and have only one class of stock.
How to Elect: You make the election by filing Form 2553 with the IRS.
Separate Legal Entity: This is the core concept. A corporation is treated as a "person" under the law. It can own property, enter into contracts, sue, and be sued, all in its own name. This creates a strong legal wall between the business and the people who own it.
Strongest Liability Protection: Because it's a separate entity, a corporation offers the strongest protection for its owners' personal assets. Owners (shareholders) are generally not personally responsible for the corporation's debts or legal liabilities. This protection is often referred to as the "corporate veil."
Ownership through Stock: A corporation is owned by shareholders who hold shares of stock. The number of shares a person owns represents their percentage of ownership in the company. This stock can usually be bought and sold, making it easy to transfer ownership.
"Double Taxation" (for C Corps): This is a major distinction. By default, a corporation is a "C Corp." It pays taxes on its profits at the corporate level. Then, when it distributes those profits to shareholders in the form of dividends, the shareholders must pay taxes on that income again on their personal tax returns. This is known as double taxation.
Formal and Rigid Structure: Corporations have a mandatory, three-tiered structure:
Shareholders: The owners of the company. They elect the directors.
Directors: A board of directors that oversees the corporation's major policies and appoints the officers.
Officers: Individuals (like the CEO, CFO, Secretary) who manage the day-to-day operations of the business.
Perpetual Existence: A corporation's existence is not tied to its owners. If a shareholder dies or sells their shares, the corporation continues to exist indefinitely.
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