When entrepreneurs consider starting a business, or
when existing small business owners consider changing
their business structure, they are often evaluating
between the limited liability company (LLC) and the C
corporation as the entity type for their business.
While LLCs and C corporations have some similarities,
most notably limited liability protection for owners,
they also have a number of distinct differences. If
you are one of the business owners considering these
two structures, this article will help you compare
LLCs and C corporations a little more closely.
Both offer the same limited liability protection for
owners, meaning that the owners are typically not
personally responsible for the debts and liabilities
of the business.
Both are separate legal entities created by a state
Both have very few ownership restrictions. The owners
are not required to be US residents, and the number
of owners is without limitation. Additionally, owners
are not required to be individuals (as with S
Ownership (stock with corporations and membership
interest with LLCs) can be divided into numerous
C corporations are separately taxable entities. C
corporations file a corporate tax return reporting
profits or losses, and any profits are taxed at the
corporate level. C corporations face the possibility
of double taxation when profits are distributed to
shareholders in the form of dividends, as the
shareholders must report dividends as personal income
and pay tax on them at the individual level.
LLCs are typically pass-through tax entities. While
LLCs do complete a business tax return, the profit or
loss of the business is passed-through to the
owners’ personal tax returns, where it is
reported and any necessary tax paid at the individual
2. Ongoing Formalities
C corporations face more extensive internal
formalities, including adopting bylaws, issuing
stock, holding initial and then annual meetings of
directors and shareholders, and keeping the minutes
of these meetings with the corporate records.
While LLCs are not subject to the same internal
formalities, they are encouraged to adopt an
operating agreement, issue membership shares, hold
and document annual meetings of the managers and/or
members, and properly document all major decisions of
3. Transferability of Interest
A shareholder of a C corporation typically is not
required to get approval from the other shareholders
before selling stock.
A member of an LLC typically must receive the
approval of the other members before ownership can be
The management of an LLC can be by members, in which
case the management is much like that of a
partnership. If the management of an LLC is by
managers, then the management structure more closely
resembles that of a corporation, since the members
will not be involved in the daily business decisions
of the company.
C corporations have directors and officers. The board
of directors oversees and directs the affairs of the
corporation and has responsibility for major
decisions, but is not responsible for the day-to-day
operations of the corporation. The directors elect
officers to manage the daily affairs of the business.
5. A C corporation’s existence is perpetual.
Conversely, an LLC typically has a limited life span.
Most states require that LLCs list a dissolution date
in the formation documents (typically called the
articles of organization or a certificate of
organization), and certain events, such as death or
withdrawal of a member, can cause the LLC to