Frequently Asked Questions
What are the significant differences between LLCs and corporations with regard to ownership, governing the business and taxation?
LLCs and corporations, while similar in providing personal liability protection, differ significantly in terms of ownership, business governance, and taxation. Corporations have a structured management system and firm ownership, with shares easily transferable between owners, making them attractive to investors. They are taxed as C corps, meaning they are taxed on profit, and shareholders pay personal income tax on dividends. Alternatively, they can be taxed as S corps, where the entire profit is passed to the shareholder's personal taxes, avoiding double taxation. On the other hand, LLCs, a more recent business structure, have no management requirements or ownership standards. The transfer of LLC ownership can be more complex than corporate shares, with owners deciding who they want as a business member. This makes LLCs more popular with small businesses. In terms of taxation, LLCs can choose to be taxed like corporations or opt to pay taxes as sole proprietorships and partnerships, where profits and losses directly affect personal income taxes.
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