LLC vs. Corporation

An LLC is generally owned by members and governed under state LLC law and an operating agreement. A corporation is generally owned by shareholders and governed through a board of directors, officers, bylaws, and corporate law.

Both structures can provide liability separation between the entity and its owners. The better fit depends on the business, ownership plans, financing needs, tax situation, and state law.

Ownership

An LLC can have one or multiple members. State law is generally flexible about who can own an LLC, although specialized businesses can face restrictions.

A corporation issues shares to shareholders. That structure can be useful when ownership will be divided through stock, outside investors are expected, or the company anticipates more complex equity arrangements.

Management

LLCs can often choose between member-managed and manager-managed structures, subject to state law and their operating documents.

Corporations generally use a more formal governance system involving shareholders, directors, and officers.

Formation and ongoing requirements

Both structures require state formation filings.

LLCs commonly file Articles of Organization or an equivalent document. Corporations generally file Articles of Incorporation or an equivalent.

Ongoing reports, fees, franchise taxes, meeting requirements, records, and other formalities vary by state and entity type.

Taxes

"LLC" does not dictate one federal tax treatment. Depending on ownership and elections, an LLC may be treated by the IRS as a disregarded entity, partnership, C corporation, or S corporation.

A corporation formed under state law is generally treated as a corporation for federal tax purposes, although qualifying corporations can elect S corporation status.

Tax consequences are highly fact-specific. Consult a qualified tax professional before selecting or changing an entity or tax classification.

Liability

Both LLCs and corporations can provide a legal boundary between business liabilities and the owners' personal assets. Neither makes an owner immune from every type of personal liability.

Personal guarantees, individual wrongdoing, and circumstances in which a court disregards entity separateness can affect the analysis.

Insurance

Entity choice does not replace insurance.

An LLC or corporation can still be sued, own property that can be damaged, employ people, provide professional services, experience cyber incidents, or be required by a contract or landlord to carry insurance.

If you operate an LLC, see What Insurance Does an LLC Need?

LLC or corporation?

This is a legal and tax decision rather than an insurance decision. Consider ownership, governance, fundraising, administrative requirements, taxes, and long-term plans. State requirements differ.

For another commonly confused comparison, read LLC vs. S Corp.