Question

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Answer 1

First Difference

Forming an LLC. An LLC is formed by one or more busines people, as owners. The owners, called "members," file Articles of Organization to form the business. Then they agree on an Operating Agreement to use in managing the day-to-day activities and decide on each member's percentage share of ownership.

Forming a Corporation. A corporation is formed (incorporated) by filing corporate organization documents in the state where the corporation is located. The corporation also creates a Board of Directors to oversee the corporate business and the board agrees on bylaws, operating documents.

Second Difference - Business Ownership

The main difference between LLC's and corporations is the ownership of the business. You might say that a corporation is owned by individuals who purchase shares, while the LLC is owned by individuals.

LLC owners have an equity interest in the assets of the business because they have made a contribution to join the business, shown in the business balance sheet as owners equity, while corporate owners are shareholders or stockholders who have shares of stock

Third Difference - Profits and Losses

The profits and losses of an LLC and a corporation are handled differently. LLC profits and losses are passed through to individual owners, while corporate profits and losses are held by the corporation.

LLCs as Pass-through Businesses. Pass-through businesses are those in which the profits and losses of the business pass through to the owners or shareholders. In other words, the business income is considered as the owner's or shareholder's income, and the owner/shareholder pays the tax on his or her personal tax return. Limited liability companies, like partnerships and sole proprietorships, are pass-through entities.

Corporations as Separate Business Entities. Corporations are separate businesses entities. The profits and losses of the corporation are held by the corporation and are not passed through to the owners directly. Yes, some earnings of the corporation may be paid to the owners in dividends, but this isn't direct. Some earnings may be kept by the corporation.

Fourth Difference - Taxes for Corporations and LLCs

Corporations and LLCs are different in how they are taxed. Because corporations are separate entities, they are taxed at the corporate rate, while LLCs are taxed based on the total Adjusted Gross Income of the owners.