Corporations and LLCs: What’s the Difference?
You probably know about companies that are actual Florida corporations, and companies that are Limited Liability Companies, or LLCs. But do you really know the difference? It may not seem to matter to you—until you’re the one looking to start a business, and you need to know which corporate structure is best for you.
Here are some differences that distinguish the typical corporation from an LLC.
Personal Asset Protection
One area where both corporate entities provide equal benefit, is in the protection of your personal assets. With both, there is a corporate veil that protects your individual assets from any wrongs or lawsuits that the company may do or be liable for. However, with an LLC, you do need to have more than one member, to get this benefit.
Taxes are different for both, and which one works for you, is a personal issue, and one that an accountant can help you with.
With an LLC, all of the company’s profits and money pass to you, individually. In other words, according to the IRS, the company doesn’t earn anything—the money the company earns is considered your earnings.
While this seems like a bad thing on the surface, it may not be, because you are avoiding double taxation that comes with a typical corporation. In a typical corporation, the company gets taxed, and you individually get taxed on the profits you make off the company-including any dividend that any shareholders may receive.
LLCs do provide a lot more flexibility than a typical corporation provides. For example, an LLC can be managed in many different ways, there is no requirement to keep minutes of meetings, they can be formed anonymously, and there can be any number of members.
You can even have a single member LLC, which is good for the solo practitioner who doesn’t want the risks of a sole proprietorship, but rather, wants some of the protections, recognition, and tax benefits of an LLC.
That flexibility extends to how members get their share of profits. Unlike a partnership where partners will generally get 50%, and unlike a shareholders agreement, which, in typical companies, will dictate the dividends that the shareholder will get, you can structure your LLC so that some people (members) get more than others, if that’s what you want to do.
Dissolution and Transfer
One drawback of an LLC, is that it can disappear if any member leaves the company. This can be avoided by saying something to the contrary in your operating agreement, but if you have none, or if it is silent, you could end up with the LLC being dissolved.
Similarly, you can’t just transfer an LLC. Usually, all members will have to agree to a transfer of the LLC. In a typical corporation however, you won’t need the approval of every shareholder, or officer (unless your bylaws say otherwise).
Forming a business? Let us help you do it the right way. Call our West Palm Beach business attorneys at Pike & Lustig today.