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LLC vs. Corporation Business Formation

Sanjay R. Gohil and Ruiling (Amy) Zhang Dec. 9, 2022

What are some of the similarities and differences between a limited liability company (LLC) and a C corporation?

When you’re initially forming a business, one of the first steps to consider is choosing the proper business structure—that is, choosing between a partnership, a limited liability company (LLC), or a C corporation. A partnership requires a minimum of two business owners and can be set up as either a general partnership or a limited partnership (in a general partnership, all partners are liable for company debts; whereas, in a limited partnership, only the general partner is liable for company debts).  However, if limiting the liability of partnership debts is a significant concern of yours, then it is best to form either an LLC or a corporation.  Let’s break down each of those two options:

One of the primary benefits of a limited liability company (LLC) is that this business model safeguards the LLC members’ personal assets from potential creditors. An LLC can have as few as one owner or multiple owners. Since LLC owners (also known as “members”) are not considered part of the LLC’s legal existence. Just like C corporations, owners are frequently exempt from liability for the debts and obligations of the company—so long as the owners do not sign personal guarantees. However, unlike C corporation owners, LLC members can also benefit from certain tax advantages, managerial freedoms, and fewer recordkeeping and reporting obligations. Many small businesses are ideal candidates for the LLC corporate model. 

However, a few key differences between an LLC and a C corporation are:

  • The management structures are different: C corporations are owned by shareholders and typically run by a board of directors.  Corporations are governed by Bylaws, whereas an LLC is governed by an Operating Agreement signed by the members. Limited Liability Companies are usually run by the manager(s), making this business model more suitable for small business owners.

  • An LLC is not taxed based on its income, while a C corporation is taxed based on its income. In a C corporation, the dividends and other distributions that shareholders receive are taxable to the shareholders.

  • An LLC terminates in accordance with the written operating agreement or filed Articles of Organization, or sometimes when an LLC member dies or withdraws. On the other hand, the death of, or withdrawal of, a shareholder generally has no impact on whether a corporation survives. A corporation’s Bylaws or the Business Corporation Act addresses the corporation’s voluntary, administrative, or judicial dissolution.

Can I set up an LLC for free? How much does it cost?

As of 2022, for domestic entities, the filing fee to file Articles of Organization for an LLC is $125 (this fee is payable to the NC Secretary of State). Out-of-state entities must pay $250. Additionally, after an LLC is organized, the North Carolina Secretary of State must receive an annual report from your LLC, which costs approximately $202 each year.  This requirement starts the year after your LLC is organized.

I’m an aspiring small business owner. Which business structure should I choose?

The straightforward limited liability company (LLC) model offers small businesses the most flexibility. If you’re an aspiring small business owner in the Matthews/Charlotte area, contact our office at (704) 814-0729 and we can explain the steps of setting up your LLC properly, or possibly setting you up as an S-corporation if you are a small business owner and prefer that business model instead.