Corporate Tax Vs. LLC: Expert Insights

Limited liabilities companies (LLCs) and corporations are the popular types of businesses and there are many prominent differences among them. If you are starting your own new business, selecting the correct entity between 2 options of LLCs and corporations is crucial for your business. Both are business designations; however, LLC offers more flexibility in tax returns than the corporation for federal taxes. Let’s get to the difference between these two!

What’s Different with Corporate Taxes and LLCs?

Corporate taxes can be of two types: S-corporations and C-corporations. In C-corporates’ case, the companies pay their income taxes based on their profits. But in S-type corporations, the companies don’t pay the income tax. Instead, they pass their profits to the shareholders and pay their portion of the income tax. 

Documentation of LLCs and Corporations 

LLCs and corporations may require you to file the documents with the state, protecting you from personal liabilities per business obligations. 

• If you choose the corporation, you may have to follow the more rigid and standardized structure for tax returns, like reporting and recordkeeping requirements. 

• On the other hand, LLCs give you more flexibility than corporations, including sole proprietorships and partnerships.

• Corporation shares are more straightforward to transfer to the shareholders than the LLCs. 

Ownership Structure of LLCs and Corporations

The ownership structure of the LLCs and corporations is slightly different. 

• LLC owners are called members, while the corporations are the companies’ shareholders. 

• Every member of the LLC has a percentage or interest in the business. On the other hand, shareholders percentages represent the number of shares of the company they own. 

• Registering your business as a corporation will make it relatively easy to have additional shares or transfer them to somebody else. 

Management Structure of LLC and Corporations 

• In the case of LLCs, the managers and their owners or members can handle the management. The members of the LLCs are the passive investors of the company. At LLCs, you don’t have to have the titles of CEO or vice president. But you can make an environment best suited for your business. 

• At corporations, there is a strict and rigid management structure. Board directors, officers, managers, and shareholders have different duties. Moreover, paperwork, documentation, and recordkeeping are significant for the directors and shareholders. 

Taxes Requirements of LLCs and Corporations

S-corporations and C-corporations are the two formats for corporate taxation. 

• In C-corporations’ case, the businesses pay income taxes based on earnings. However, in S-corporations’ case, the enterprises transfer their profits to the shareholders, who then pay their part of the income tax.

• LLCs don’t have any IRS classification; each company member receives the profit and pays taxes in these cases. 

Takeaway

We have mentioned the difference between LLCs and corporations. We hope the guide helps you make an informed decision.