LLCs vs. Corporations

LLC Corporation

Key Takeaways

Full Text

When starting a company, founders should become familiar with types of business entities before deciding if and how to incorporate. LLCs and corporations are typical forms of entity used by startups. Although both provide similar liability protection for owners, there are several key differences as highlighted below.

LLCs are limited liability companies. These companies offer more flexibility regarding management and taxation and require fewer record keeping requirements. Owners are called members and own a percentage of the business, which is sometimes called a membership interest. These members act like partners. They can be involved in managing LLCs (member-managed) or can appoint someone else (manager-managed). The operating agreement, an enforceable contract among members, can control a new company’s management structure. There are often restrictions on transferring membership interests in LLCs. The approval of other members can be required, while some states require that LLCs are dissolved if a member leaves. These companies do not have their own tax classification and founders can choose how they are taxed, whether it be as sole proprietorship, a partnership, an S corporation, or a C corporation. 

Corporations, on the other hand, offer greater structure and the ability to transfer shares easily. Owners of corporations are called shareholders and are issued shares to correspond with their percent of ownership. These shares are easy to transfer from one person to the other, giving corporations perpetual life. The management structure at these companies is more rigid, often compromised of a board of directors for broad oversight and various officers for managing the day-to-day. Corporations will hold annual shareholder meetings, issue annual reports, and have more reporting requirements to meet. They are taxed as either C corporations or S corporations.

Decisions regarding corporate form are incredibly important, and should be made in consultation with the appropriate legal and tax resources. A startup lawyer is typically a source of valuable information and advice on such matters.

As always, should you have any questions about anything contained within this Insight, don’t hesitate to get in touch with us via call, text or e-mail using the contact details listed in our site footer, or via the form below.

Disclaimer: Please note that the information provided in this blog post does not, and is not intended to, constitute legal advice. Rather, all of the information, content, and materials available on this and every other page of our website is made available by us for general informational purposes only. The information in this post or anywhere else on this website may not constitute the most up-to-date legal or other information, and should not be relied upon for making any decision, acting, or refraining from acting. All liability on the part of Chatterjee Legal, P.C. and any and all of its attorneys and/or other professionals with respect to decisions made, actions taken or actions not taken based on the contents of this blog post, this page, or this website is hereby expressly disclaimed. The contents of this blog post, this page and this website are provided on an “as is” basis, and no representations are made that such content is free from errors. Our content contained within this post or elsewhere on our website may link to websites, content or other resources belonging to third parties. We present these links only for convenience purposes, and we make no representations or warranties of any kind with respect to any such third-party websites, content or other resources. Access to and/or use of this blog post, this page, or this website does not create an attorney-client relationship between you and Chatterjee Legal, P.C. or any of its attorneys or other professionals.

Share This Insight
Related Articles
Startup Lawyer

Startup Lawyer

The choice of a lawyer to assist with the formation and operation of a startup is an important decision. We lay out key considerations when choosing a startup lawyer.

Read More

Incubators vs. Accelerators

For startup founders, it is important to understand the distinction between startup incubators and startup accelerators. The key characteristics of each are discussed below.

Read More

This site uses cookies to provide you with more responsive and personalized service. By using this site, you agree to our use of cookies.

For more information, click here to review our Cookie Policy.