Question

In a short paragraph, can you describe the primary attributes of a limited liability company? Why would you choose an LLC over a corporation?   Why not?

Answer 1

Let us go through differences between LLC and corporation

1. Both corporation and LLC should be registered with state. However, corporation would have more compliance requirement compared to LLC. Like shareholder meeting, BOD meeting, AGM, filing various returns etc. Which is not required by LLC.

2. In taxation structure as well there is a difference. LLC has passthrough taxation i.e profits would be taxed in the hands of members of LLC. In corporation, corporation would pay taxes.

3. In LLC management of business is done by owners itself. However in corporation there is organization structure where directors are appointed by shareholder and then BOD will take decisions for business.

4. In Corporation you can raise money from outside by issuing shares to public. In LLC you need to find member who is willing to invest in business.

5. Profits of corporation would be distributed to shareholders based on number of shares or portion of profits can be reinvested into business based on decision taken by BOD.

Both LLC and corporation's liability is limited to investment made in business. Thus personal assets are not under risk if business fails.

Conclusion

If someone wants to start business with less regulatory requirement and with full control on management then LLC would be good for such business. However if someone wants to start a business with good organization structure, potential to expand by getting huge public investment then corporation can be opted.