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An LLC and a corporation are both companies formed under state law. Each is created by a filing with the state, each gets an entry on the state register and each is a legal person separate from its owners. They differ in how ownership works, how they are taxed by default and how much formal record keeping the state law expects.
This page sets out the general differences. It is not tax or legal advice, and an accountant or attorney can say which fits your plans.
Side by side
| LLC | Corporation | |
|---|---|---|
| State filing | Articles of organization or certificate of formation | Articles of incorporation or certificate of incorporation |
| Owners | Members | Shareholders, who hold stock |
| Run by | Members, or managers they appoint | A board of directors and officers |
| Default federal tax | Disregarded (one member) or partnership (two or more) | Taxed as a separate entity, a C corporation |
| Tax options | Can elect corporate tax treatment | Can elect S corporation status if it qualifies |
| Upkeep | State report and fee, an operating agreement | State report and fee, bylaws, board and shareholder records |
Formation filing
You form either one with the state filing office, usually the Secretary of State. An LLC files articles of organization, which some states call a certificate of formation. A corporation files articles or a certificate of incorporation. Each state sets its own filing fee for each type, and the two are often different. Our state guides, such as Delaware, California and Texas, list both with their sources.
Ownership and control
LLC owners are called members. The IRS LLC page says "There is no maximum number of members" and that most states allow single-member LLCs. An operating agreement sets how the members share profit and make decisions, and it can be tailored widely.
A corporation is owned through shares. The IRS forming a corporation page says "prospective shareholders exchange money, property, or both, for the corporation's capital stock." Shareholders elect directors, and directors appoint officers. Shares are easy to issue and transfer, which is one reason investors tend to prefer corporations.
Taxes in general terms
LLC. The IRS LLC page explains the defaults. A single-member LLC is "treated as an entity disregarded as separate from its owner", so its income goes on the owner's return. An LLC with two or more members is "classified as a partnership for federal income tax purposes". According to the IRS partnerships page, a partnership "does not pay income tax" and instead passes profit or loss through to its partners. An LLC can file Form 8832 to be taxed as a corporation.
C corporation. The IRS says "a C corporation is recognized as a separate taxpaying entity" and files Form 1120. It adds: "The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax."
S corporation. A corporation can file Form 2553 to pass income and losses through to its shareholders, per the IRS S corporations page. The IRS lists limits, including "no more than 100 shareholders", and S corporations may not have "non-resident alien shareholders". That matters if any owner lives outside the US. See LLC for non-residents.
States tax companies in their own ways too. Some charge a franchise or privilege tax that applies to LLCs, corporations or both.
Reports and fees
Both types file a report with the state, yearly in most states and every two years in some, with a fee. The fee and due date often differ between LLCs and corporations in the same state. Our annual report deadlines guide lists them, and the LLC fees by state table shows the LLC fees side by side.
A corporation usually has more internal paperwork as well: bylaws, a board, minutes of meetings and a share register. State law sets what is required. An LLC's internal rules sit mainly in its operating agreement.
Picking one
If you lean towards an LLC, check the name in your state with our LLC name search, then fill in the start form below. It asks for the state and the owners, and replies with the next steps and the state fees.
Two related choices come up often: whether to tax an LLC as an S corporation, covered in LLC vs S corp, and whether you need an LLC at all, covered in LLC vs sole proprietorship.
After forming, put the rules in writing with a free operating agreement template.
Forming a corporation? Draft its corporate bylaws. Two or more business partners can start from a partnership agreement template.