What Is an LLC? And How Is It Different Than a Corporation?

An LLC, or limited liability company, is a legal business entity you form to protect your personal assets from liability. It will also establish how your business income is treated come tax time.

Corporations, on the other hand, are another business entity that also provide liability protection. But, they are set up a little differently from an LLC.

Ownership

An LLC is typically either owned by one person or a small group of co-founders. But technically, an LLC doesn’t have “owners”; it has “members.”

The governing rules of an LLC are spelled out in an “operating agreement.” Additionally, it’s worth noting that all members can manage the LLC (aka “member-managed”) or one designated member can manage it (aka the “managing member”).

Meanwhile, an Inc. effectively belongs to the people who hold shares in it, and the company management is accountable to those shareholders.

Because a corporation is very distinct from its shareholders, a shareholder can sell their stock to someone else, and the company can continue doing business fairly seamlessly.

This is why most private investors will want to have the entity be a corp rather than an LLC. And eventually, if the company grows and goes public, that step will be much easier.

Swipe Up

to learn more about the differences of LLC and a Corporation!