The difference between an LLC and a corporation can be complicated when looking at the fine details of both legal entities. These fine details can sometimes be the deciding factor in choosing to become an LLC or a corporation. You may want to seek the advice of a lawyer or accountant (be warned, not all lawyers and accountants will be up to date with all LLC laws) to help you decide what business entity would best suit your needs. However, for many businesses, these fine details will not be a factor in deciding to become an LLC or a corporation, and so let’s look at the general differences between an LLC and a corporation. Legal entity vs tax entity Before going any further, a distinction between a legal entity (LLC v. corporation) and a tax entity (sole proprietor / partnership vs. C-corporation v. S-corporation) must be made. Often, new entrepreneurs get these two concepts mixed up and will end up unnecessarily confused. A tax entity classification is simply the way the IRS (and the state taxing board) sees the business. The legal entity classification is how everybody else (i.e. courts, state, contractual partners) sees the business. A corporation (legal entity) will be given a corporation (C-corp or S-corp) designation as a tax entity. However, an LLC (legal entity) has a choice on what tax identity it wants to have. An LLC can be seen as a sole proprietor / partnership, or as a C-corp, or as an S-corp (there is no true LLC tax entity and so an LLC is seen as one of the traditional business designations instead). In this sense, an LLC has greater flexibility and can choose the tax identity that most benefits its members. With this in mind, here are the major differences:
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