LLCs are organized under an Operating Agreement, a contract between owners (“members”) with articles of organization specifying how the business will be run and how costs and profits will be shared.
Structuring an LLC is a relatively open-ended process. Needless to say, this has its pros and cons, as so much relies on the Operating Agreement and all parties involved must always be considered, which can be a recipe for headache. Corporations, by comparison, are more standardized. Features of an LLC include:
- Limited liability for founders; moving liability for debts and obligations of the business from the entrepreneurs into the company itself.
- Pass-through taxation which allows LLC’s owners to pay personal income taxes on the income of the business.
Corporations are structured based on the principle that control and ownership can be separate. Owners are called shareholders and they may or may not be involved in the day-to-day operations of the company. Ownership of the business is tracked by shares, with each share corresponding to a defined portion of control of the business and of entitlement to profits.
What Does LLC Mean?
LLC stands for “Limited Liability Company,” and it’s one of several different types of business you can create in the United States. An LLC provides some distinct advantages to an entrepreneur or business owner, including liability protection, tax advantages and easier administration than some other types of entities.
A limited liability company (LLC) is a form of business entity that is separate and distinct from a person, like a corporation. The LLC is often described as hybrid between a corporation and a partnership (or sole proprietorship). It allows for the limited liability protection similar to that of a corporation (i.e. your risk is limited to the amount that is invested in the LLC, and personal assets beyond that are usually protected). It also allows for a more flexible setup and operating structure than a corporation while providing the pass through taxation of a partnership (if a multi-member LLC) or a sole proprietorship (if a single member LLC). One of the main advantages of an LLC over a Partnership or a Sole Proprietorship is the Limited Liability protection.
Many well-known companies are Corporations. Any individual can own shares at one of these companies without having any responsibility for working there. Features of a Corporation include:
- Corporations provide limited liability because shareholders are generally not individually liable for the debts and obligations of the company.
- Corporations must pay corporate taxes on their own profits (and have extensive filing obligations). Shareholders are taxed separately, if the company distributes dividends to them (or if it pays them a salary, in the case of employee owners).
- Corporations are generally most suitable from an investor’s perspective because their structure is designed to distribute ownership. Corporations adhere to a standard structure for the distribution of options to buy that stock, which can then be used to attract, retain, and incentivize key talent, contributing to the success of the business.
Services we offer :
- Search name availability in your State and resolve any Conflicts
- Draft your articles of Organization
- Act as your Registered Agent
- Provide a preliminary operating Agreement
- Obtain your federal Employer Identification Number (EIN)