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Business Law FAQsChapter 7 and 13 Bankruptcy Lawyer in ScottsdaleBusiness Corporate and Commercial Law FAQ: (1) What is the difference between a corporation and an LLC? (1) What is the difference between a corporation and an LLC ? Both a corporation and an LLC are separate legal entities and provide protection to the owners from personal liability. A corporation has a perpetual life, whereas an LLC is usually dissolved when the members die. Corporations are required to keep formal minutes, have meetings, and record resolutions. The LLC business structure does not require any corporate minutes or resolutions and is easier to operate. An LLC has greater flexibility in management and allocation of profits and losses. The corporation (C corporation) is essentially taxed twice; once on its profits and again shareholders are taxed on their personal income at the time they receive dividends (unless the corporation elects to be treated as a S corporation). An LLC is a flow through entity, it does not pay corporate taxes on its profits, but business profits, losses and expenses flow through the LLC to the individual owners who pay personal taxes (unless an LLC elects to be treated as a C corporation). A corporation is a separate legal entity which exists separately from the shareholders and has a perpetual life. When the corporate formalities are properly followed, the shareholders, directors and officers of the corporation are not personally liable for any debts and obligations of the corporation. Corporations are required to keep formal minutes, have meetings, and record resolutions. The corporation (C corporation) is essentially taxed twice; once on its profits and again when shareholders are taxed on their personal income at the time they receive dividends (unless the corporation elects to be treated as a S corporation). (3) What is a S corporation (S-corp)? S corporation (S-corp) is a corporation that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code. Unlike a regular corporation (C corporation), a S corporation generally pays no corporate taxes on its profits. The shareholders pay income taxes on their proportionate shares of the S corporation's profits. In order to make the election to be treated as an S-corporation, the corporation must have no more than 75 shareholders who are U.S. citizens or permanent residents (natural persons, not corporations or other legal entity), and the corporation must have only one class of stock. (4) What is a limited liability company (LLC)? A limited liability company (LLC) is a separate legal entity offering limited liability to its owners (called members) regardless of their participation in the business. The owners enter into an operating agreement that delineates their specific duties and how profits will be allocated. The LLC business structure does not require any corporate minutes or resolutions and is easier to operate. In Arizona, an LLC has fewer reporting requirements than a corporation, and does not require an annual report to be filed with the Arizona Corporation Commission. For U.S. federal tax purposes an LLC may be treated for U.S. federal tax purposes as a disregarded entity, partnership, C corporation or S corporation. |
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