What’s the difference between LLCs and corporations?
“LLC” and “corporation” are often used interchangeably to refer to companies that are created under State law. Generally, they are similar to one another in terms of being legal entities separate from the actual owner, which means that the company’s debts and liabilities are its own and are not shared with the owners or shareholders.
This is in contrast with a sole proprietorship or partnership, where the individual owners own the assets and hold liabilities and debts in their name. And hence, are responsible for any debts incurred by the company.
Both a corporation and an LLC, or Limited Liability Company, are set up to provide liability protection, and both act in the same way to implement that protection for the owners. The key difference is very minor and would just refer to flexibility in terms of formation, requirements, etc.
Corporation vs. LLC
A corporation is more of a traditional structure, which is why we know of a lot of big companies that are labeled as corporations, regardless if they’re C-Corp or S-Corp. These types just refer to the way the corporations are taxed. If you want to know more about corporation taxes, read our blog post about C-Corps and S-Corps. ( https://irvinecounsel.com/19873-2/ )
A corporation, as compared to an LLC, has more formalities in terms of formation, documents, etc. While LLCs, though providing the same liability protection, are a little bit more flexible. An LLC can have a private operating agreement that sets out very specific ways to manage things.
LLCs are preferred nowadays because of their relatively modern nature and flexibility in terms of formation and documents, while still providing the same liability protection as