|
Differences between an LLC and a C Corporation
When trying to decide which type of business entity that is best suited for your particular enterprise, there are many things to take into consideration. Unlike an S Corporation, a C Corporation can have an unlimited number of shareholders and an LLC (Limited Liability Company) can have an unlimited number of members. There are however several main differences between an LLC and a C corporation and it can be hard to decide which entity that will be ideal for your venture.
A C Corporation is a unique entity separate from the owners. Since the C Corporation is a completely separate entity, it can for instance be sued and it has the right to enter into contractual agreements. The LLC is instead a type of hybrid between a corporation and a partnership. Just as in a C Corporation, the liability is limited, but when it comes to tax efficiency and day-to-day flexibility, the LLC is more similar to a partnership. Forming an LLC is common among sole proprietors who wish to protect their personal assets.
How to form
There are large differences between an LLC and a C Corporation regarding document requirements. If you want to form an LLC, you will need an Operating Agreement and Articles of Organization / Certificate of Formation. If you instead choose to form a C Corporation, you will need Articles of Incorporation, Organizational Board Resolutions, Stock Certificates, Stock Ledger, and Bylaws.
Capital
The most common way for a C Corporation to receive capital contributions is by having shareholders that purchase stock. In a C Corporation, stocks can be either common or preferred. In an LLC, the most common way is instead to have members contributing money, or services, to the company in exchange for an interest in profits and losses.
Management
In a C Corporation, a Board of Directors is granted an overall management responsibility, while Officers will be given day-to-day responsibility. In an LLC, it is instead the Operating Agreement that decides how the business will be managed. The company can choose to designate a Manager or select a Member (owner) who will manage the business.
Tax Treatment
If you form a C Corporation, the corporation will be taxed on its earnings and the shareholders will only be taxed when the corporation distributes dividends. If you instead create a LLC, the corporation will not be taxed, because profits as well as losses will be passed to the members. It is however possible for a LLC to choose to be taxed and this will of course change how the LLC is treated. This can decrease the differences between an LLC and a C corporation.
Personal Liability
The owners of an LLC are called members while the owners of a C Corporation are shareholders, but there are really no major differences between an LLC and a C Corporation when it comes to personal liability. Generally speaking, there is no personal liability of the members or the shareholders. There is however exceptions to this general rule, so it is always a good idea to contact a legal expert to find out more about the differences between an LLC and a C corporation. | 
