Know the Difference Between a Corporation and an LLC
I am often asked about the difference between a corporation and an LLC. An LLC is formed by one or more owners filing articles of organization with the state. By contrast, a corporation becomes incorporated after filing the organizational documents, appointing a board of directors creating bylaws, and then distributing company stock. The owners of an LLC are called members. They have an equity interest in the business. Corporations are owned by shareholders who have shares of stock in the business. An LLC is a pass-through entity, meaning that the profits and losses pass through the company to the owners. In a corporation, income taxes are paid by the corporation itself, not by the owners directly. There’s exceptions. If you have an SS corporation, this allows the corporation to keep sub-earnings. LLCs can choose how the IRS taxes the business. LLCs can be taxed as a corporation partnership or pass-through entity with the profits flowing through to the business owner’s personal income. If you’re a sole owner and choose to be classified as a pass-through entity, you would owe personal income tax and self-employment tax. If there are two or more owners, you would each owe personal taxes. Under a partnership classification, a corporation is taxed at a set corporate tax rate and does not pay self-employment taxes to learn more. Consult an exceptional business lawyer.