What are the differences between an LLC and a corporation?

On Behalf of | Mar 16, 2023 | Small Business Law

There are many different aspects of a business that new business owners in Texas need to account for when they start up. They certainly need to know the product or service they are selling, but they also need to figure out the logistics of how they will market to customers as well as how they will deliver their product or service to customers.

Another important aspect of starting a business is choosing the appropriate business structure for it. There are different options for businesses, but two of the most common options are corporations or limited liability companies (LLC). There are similarities between the two such as they create a separate entity from the owners and protect the owners from being personally liable for the debts of the company and from lawsuits against the company.

Differences between a corporation and an LLC

There are differences between the two and knowing those is important when companies are choosing the best business structure for their company. The main differences between the two are:

  • Ownership: LLCs are owned by members who are generally people who started the business or contributed financially to the start of the business. Corporations are owned by shareholders who buy shares from the business.
  • Taxes: LLCs are pass-through entities. This means that any profits and losses of the company pass through to the owners who claim them on their individual taxes as income. The owners also need to pay self-employment taxes. Corporations are taxed separately as their own entity and the owners are only taxed on the dividends and income they receive from the corporation. The owners do not need to pay self-employment taxes.

There are different considerations that people in Texas need to take into account when choosing between corporations and LLCs. While they may seem fairly similar, there are major differences that affect who owns the business and how it is taxed. Business owners may find it beneficial to speak with experienced attorneys who understand the differences and which one may be best for the company.