What Is The Difference Between A Corporation And An LLC?

 

As a new business, it’s imperative that you first figure out what kind of entity you are going to be. There are several from which to choose, but the most common are LLC or corporation. Today we’ll look at the difference between Corporations vs. LLCs, going over the pros and cons of each one so you can make an informed decision and build a strong foundation for your company.

Tax Flexibility

One of the primary distinctions between entity types is that one has to be taxed a certain way (corporation), while the other can be much more flexible (LLC). Overall, if you are starting an LLC, you can decide whether you want to be taxed like a corporation, partnership, or a sole proprietor, regardless of how many members are part of the agreement. This can be quite beneficial as you may need to be taxed a certain way to ensure your business is running as smoothly as possible.

Who Owns It?

With an LLC, the founding members own the company, which means that profits are split between them. A corporation, on the other hand, is owned by its shareholders. This distinction is crucial as it will dictate how the profits are split up. An LLC can be divided evenly regardless of capital investment, whereas certain classes of corporations have to pay back according to who invested which amount. Also, C-corporations may be taxed twice, once as a corporate tax and the other when shareholders make money from their shares (individual tax).

Making Changes

As a corporation, your management structure has to be laid out in a certain way (CEO, CFO, etc.), but with an LLC you can be much more fluid. This allows for greater flexibility while running the business, but it can also make it easier to change later on, such as if a member leaves or wants to take on different responsibilities.

Overall, if you want flexibility, then an LLC is the way to go, but corporations can have some better benefits as far as how profits and taxes are filed. Either way, you can apply for an EIN online get your business started; just go to www.govdocfiling.com today.