What is the difference between an LLC and a corporation?
There are a lot of differences, as a matter of fact, and I think that can be explained by looking at the advantages of each of them. In my opinion, the advantage of an LLC, and there are several of them. Number one, it's automatically treated like a pass-through entity without making an S-corp election, which is what you'd have to do for a corporation. That means that taxes and earnings, as they're earned by the company, are flowed directly through to its members or owners and that there's no separate or double taxation of profits at the corporate level. Additionally, with an LLC, there are fewer corporate formalities. The requirement of taking meeting minutes and having certain board of director meetings that you have for corporations isn't present when it comes to a limited liability company. Also, when you look at a limited liability company and an S-corp, which look a lot like the same from a tax perspective, however limited liability companies offer more flexibility in that individuals who are shareholders or not shareholders but the members of a limited liability company are not restricted in number like they are for S-corps. They can be entities or other non-natural people and they can also be non-U.S. citizens, which isn't the case for that. Now, there are some definite benefits to having a corporation. Typically, those benefits are that if you wanted to retain earnings at the corporate level, that is automatic when you have a C-corporation. Also, at times, depending on the type of corporation you have and the types of benefits and fringe benefits that you have in a corporation, you can have better tax treatment of a C-corp and also, like I said, the ability to retain earnings. And even though you might be taxed on them at the corporate level, a lot of companies require that and actually need that type of cash retention.
