Understanding The Differences Between An LLC And A Corporation

Many small business owners, when they decide that it is time for massive growth, consider turning their company into an LLC. An LLC or Limited Liability Company is often the first step for small business owners. Both the LLC and corporation are registered with the state that the business is in but it is important to understand that there are major differences between these two business types. Knowing these differences will help business owners to determine which of the two are best for their individual business.

An LLC is formed by one business owner or more. The owners are known as members and must file an Article or Organization. Profit and loss from the business are passed on to the business members or owners, depending on the specific share of membership that they have. A corporation on the other hand, is a separate legal entity that is formed by filing certain forms in the state where the business is located. Corporations must designate shareholders and each of these has a specified number of shares in the company. A Board of Directors is also essential with a corporation and the Board oversees the running of the business.

Corporations and LLCs do have some similarities. Tax deductions for businesses are the same or very close for both of these entities. Both also limit the liability that owners or shareholders are held responsible for regarding debts from the business. The liability for lawsuits against owners and shareholders is also limited with both a corporation and an LLC.

Determining which of these is best for your particular business will require a few considerations. While both have their benefits, they also have their drawbacks depending on your specific business. If you own a small business, forming an LLC is often the first step in growth. Corporations are often chosen when the business has grown substantially to the point of needing a Board of Directors to oversee the operations. For those who plan to grow to a global base, a corporation is often the better choice, however this again depends on the particular business in question as well as the benefits that the owner hopes to gain.

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