Understanding The Difference Between Corporations and LLCs

Corporations and limited liability companies (LLCs) are the most adopted business structures. Since most small to medium-sized businesses are better structured as either a corporation or LLC, in this article we will highlight some basic similarities and differences between these two entities.

How a business is formed

Let’s start by forming LLCs. An LLC is founded by one or more businesspeople as owners. The owners, called "members," file Articles of Organization to make the business. Then, they agree on an Operating Agreement to use in managing the day-to-day activities and agree on each member's percentage share of ownership.

Forming a corporation is made, or we would rather say incorporated, by filing corporate organization documents within the State where the corporation is founded. The corporation also creates a Board of Directors to oversee the company business and therefore the board agrees on bylaws and operating documents. The corporation could also be a stock corporation, with shares of stock and stockholders, in addition to the main owners of the business.

Business Ownership

The main difference between LLCs and corporations lies in the ownership of the business. You would possibly say that a corporation is owned by individuals who purchase shares, while the LLC is owned by individuals, those who founded the business from scratch.

LLC owners have an equity interest in the assets of the business since they need to contribute to kickstart the business, while corporate owners are shareholders or stockholders with shares of stock.

Profits and Losses

Losses and profits of an LLC and a corporation are shared differently. LLC profits and losses are shared between individual owners, while corporate profits and losses are held by the corporation itself.

Additionally, corporations are separate business entities. The profits and losses of the corporation are held by the corporation and aren't sent to the owners directly. Yes, some earnings of the corporation could also be paid to the owners in dividends, but it is not direct.

Corporate kit

Corporate kits for corporations consist mostly of a binder, Corporate Embossing Seal, Corporate Certificates, By-laws, Minute Books, Sample forms and Ledger

On the other hand, corporate kits of LLCs consist of Binders, Corporate Embossing Seal, LLC Certificates, Operating Agreement, Minutes Book, Sample forms and Transfer ledger.

Whatever your business structure is, you can rest assured to find the ideal corporate kit or LLC kit that will help you stay on top of your documents here.