At the Piatchek Law Firm, our attorneys assist clients with the formation and operation of businesses in Missouri. Many clients have questions about the differences between various types of business entities. However, there is one specific question that continues to come up: “What is the difference between a limited liability company (LLC) and a corporation?”
Corporations have been around a long time. However, corporations are not being formed as often as they once were, mainly due to the arrival of the limited liability company (LLC). There are many similarities and differences between limited liability companies and corporations. First, let’s acknowledge some similarities.
Similarities of LLCs and Corporations
First, both corporations and LLCs can provide separation between business assets and personal assets. If you have no entity set up, your only choice is to title all business and personal assets into your own personal name. However, with a corporation or LLC, you can choose which assets will be owned personally and which assets will be owned by your business.
Secondly, and perhaps more importantly, having a corporation or LLC allows you to sign and bind the entity, and not yourself, when signing legal contracts. For example, if you are signing a contract with a vendor to perform a service, you now can sign as “President of the Corporation” or “Manager of the LLC.” In doing so, you bind the company, not yourself, to the terms of the agreement. If you have no entity set up, your only choice is to sign the contract in your personal capacity, making yourself personally liable. In the event something goes wrong, you and your personal assets will be on the line.
Differences of LLCs and Corporations
As for the differences between LLCs and corporations, there are several. First, corporations have to be renewed with the appropriate filings with the state each year – or in some cases, every other year. An LLC, on the other hand, can be “perpetual,” in that it does not require filings with the state each year or two. Typically an LLC also requires less paperwork for the continued operation of the business.
In addition, the structure of an LLC is usually simpler. Rather than having a board, officers, and shareholders, an LLC simply has “managers” (who are the equivalent of the board and the officers, combined into one group) and “members,” (who are the owners). Many LLCs are “member-managed,” meaning that the same people (or person) who own the LLC are also the managers of the LLC.
Lastly, an LLC is more flexible tax-wise. Although legally a limited liability company, an LLC can be treated as a proprietorship, partnership, S-corporation, or even a C-corporation under federal tax laws.
Should I form an LLC or a corporation?
For honest, professional, and affordable legal representation, contact our offices to arrange a confidential consultation. Evening and weekend appointments are available upon request, and we may be able to arrange a home or business visit if you are unable to travel to our offices. Call us today at 417-882-5858 to learn more.