LLCs vs Corporations
Similar to the European concept of a “limited company”, the American legal entity known as a Limited Liability Company (LLC) is a combination of a corporation and a partnership.
Like a corporation, an LLC has a legal existence separate from its owners: the owners and managers are not personally liable for the company’s debts and obligations. However, like a partnership or an American S-Corporation, an LLC is automatically treated as a “pass-through” entity for tax purposes, meaning that the LLC’s income passes through to you personally and you are taxed on an individual basis (which, as you’ll find out shortly, is a Very Good Thing™ for foreign owners and investors).
Similarities to a Corporation
- Both are legal entities created by a state filing.
- Both help you protect your personal assets from liabilities your business may incur.
- Delaware has recently made it possible for LLCs to transform themselves into corporations, and vice versa.
Differences from a Corporation
- Corporations issue and are owned via shares of stock, LLCs do not issue stock and are owned via membership interest.
- Corporations have shareholders as owners, LLCs have members.
- Corporations have directors, LLCs have managers.
- Corporations are governed by statutes and and bylaws, LLCs by a flexible, private operating agreement.
- Corporations are required to hold annual meetings of shareholders and directors, as well as keep written minutes of each meeting; LLCs are not obligated to have annual meetings.
- Corporations are separately taxable entities, LLCs are pass-through tax entities.
- Owners of corporations with SubChapter S status must be U.S. citizens or permanent residents; LLCs have no such ownership restrictions.