Limited liability companies and corporations both have the potential to be excellent organizational structures for small businesses. However, they have different possible benefits depending on the exact application.
In this article, you should learn the basics of each of these structures. This information should provide a general background — whether you are forming a new business or converting from another type, such as a sole proprietorship or a partnership.
One of the functions of an LLC is, as the name suggests, to limit liability. In many cases, an owner’s liability for the business is limited in the sense that claimants against the business would not typically have a claim against the personal property of the owner. This contrasts with sole proprietorships.
However, similar to partnerships and sole proprietorships, LLCs do not have strict formal requirements. This combination of low formality and limited liability, along with a sometimes-simpler initial formation process when compared with other corporate structures, makes LLCs a common choice for various types of businesses in many stages of growth.
In contrast to LLCs, corporations typically must abide by highly formal rules. However, many of these formalities would be common corporate behavior with or without regulations. For example, corporations typically must hold regular stockholder or management meetings — things that corporate leadership would usually want to do to maintain clarity and direction.
While these two structures might seem similar from this brief description, there are many differences between them. Your choice could position your organization for future success, so please ensure that you understand all of the potential outcomes before committing to this complex, critical step.