What Is an LLC? And How Is It Different Than a Corporation?

What is an LLC? An LLC, or limited liability company, is a legal business entity you form to protect your personal assets from liability.

What is a corporation? The other most common option is a corporation (aka a corp or Inc.). Corporations are another business entity that also provides liability protection.

What are the differences between an LLC and a Corp?

Ownership An LLC is typically either owned by one person or a small group of co-founders. But technically, an LLC doesn’t have “owners”; it has “members.”

An Inc. effectively belongs to the people who hold shares in it, and the company management is accountable to those shareholders.

Liability Protection They both will protect you similarly if the company gets sued. However, if you personally get sued, an LLC might be better.

Paperwork Generally speaking, LLCs indeed have less paperwork, particularly because it doesn’t have to hold “annual meetings” of the directors and take meeting minutes.

Tax Treatment Tax savings used to be the most important deciding factor between an Inc. and an LLC. Oddly, since both can be classified as C corps and S corps for tax purposes

Which is right for you? For small businesses, becoming an LLC (with an S corp election) could be the best option, particularly if the organization is small and is aiming to minimize the complexity of its tax affairs while still protecting the owners from unwanted legal ramifications.

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