By JMK Property Management - Saturday, April 23, 2022
Difference between a LLC and a CORP company
After our previous article, many people have asked us; What is the difference between a company incorporated as an LLC and another as a CORP? and we found that; although both entities seek to protect the individual from the legal entity, from certain personal responsibilities; each of them is managed differently before the tax obligations.
That is why we want that before creating your company in the United States, you know the differences; and use the one that suits you best; with this clear, the most important thing will be to have the support of a company specialized in the creation of companies in the United States.
Other factors to take into account when choosing between these companies
Both LLC's and CORP's enjoy advantages in time, form and place, for example:
- Ownership is transferable.
This means that, following the laws of each state, it is possible to transfer ownership of the company to another person.
- Companies can last indefinitely
In both models, this characteristic is given, even after the death of their owners, they can be taken over.
- Ownership can be converted to the other model
That is, an LLC can become a CORP and vice versa; as long as the state allows it, or they can even be transferred to another state.
Remember that CORPs and LLCs protect individuals (members of the company) against some corporate liabilities; and we say some, because there have been cases in the courts where the individual has been affected in lawsuits against the company, even though the individual did not actively participate in the case.
With this clear, we invite you to know its main characteristics and differences.
What is an LLC?
LLC - Limited Liability Company, a model that combines corporate advantages with tax elements; it protects your individual from possible financial problems or lawsuits against your legal entity,
Some advantages of opening an LLC
- More flexible operation
You make the important decisions for your company yourself and in less time, making it versatile and flexible in its management; not so in the Corp where there is a group of directors who are the ones who decide, while the others fulfill their functions.
- Payment of taxes only once
The company does not pay income tax and distributes 100% of the profits to its members; being these the ones who pay income tax; that is why in states where the individual does not pay income tax to the state; the values collected are lower; consequently, states like Florida attract many people to create such companies.
- You do not have to be a resident or citizen
You can create an LLC from your country, you only need a business address; either from a virtual office or using the address of your accountant.
- There are no ownership restrictions
Like a C CORP, an LLC does not have any ownership restrictions.
- Separation of certain responsibilities
Especially those of a business nature where in certain states of the Union, an LLC can be formed with only one natural person; separating it from all liability as a business, as is the case in Florida.
Some disadvantages of LLCs
- Not recommended for attracting investment
Generally, when people want to invest, they will prefer corporate structures over an LLC; if you want to attract investors, this is not the best option.
- They are required to share profits
Each fiscal year, they demand to distribute the profits of the company among its members; this is done in proportion to the contribution of each one of them; in contrast, in a C CORP, such annual distribution is not necessary.
What is a C CORP?
Keep in mind that in addition to C CORP, there is also a model called S CORP; but this is for companies in which all the shareholders are Americans; while a C CORP or Corporation C, can be formed by foreigners.
In this model of company, we already find hierarchies, where there are shareholders, directors and even board members; to operate, it is necessary to establish Articles of Incorporation; that is to say, to follow rules such as, the adoption of bylaws, shareholders' meetings, filing annual reports and issuing shares; that is to say, it is a more traditional company, which is also subject to the payment of state and federal taxes.
Benefits of creating a C CORP
- No ownership restrictions
Because of this, C CORPs are a good option for companies that want to be publicly traded.
- The individual does not file taxes
The partners of the C CORP do not need to file taxes in the United States; as if they do those of the LLC; they would only do it when they receive as shareholders, distribution of profits; for this reason, foreigners opt for a corporation, at the moment of creating a company in the United States.
- Credits can be obtained for the company
The C CORP allows to create credit history in the name of the company, this attracts a lot of foreigners; while in the LLC the credit is built by the partners; therefore, this is difficult for non-residents in the United States.
- Access to shares
With the Corporation, you have access to different types of shares, with all the advantages that this means.
A disadvantage of the Corporation
- Double taxation
This is certainly not attractive, first you will have to pay corporate taxes; these are derived from the net profits of the company; then, you will have to pay taxes on your profits as a shareholder.
In summary, the most convenient option will be the one that together with an expert advisor, you can choose for your benefit and consolidation of your company.Consider creating an LLC, if you are looking for more flexibility in your management; while in the C CORP, you will be limited to the directors who decide about the company; managing a more traditional business structure; this will also require annual meetings between directors and shareholders, and the documentation of such meetings.
You should also consider creating an LLC, if you want to receive full profits for the fiscal year; and if the company has partners, they will receive profits according to their participation in the business.
Consider creating a C Corporation, if what you want is to receive investment; since by generating different types of shares, you will be able to issue preferred securities; likewise, according to certain tax codes, you will be able to benefit from the exclusion of certain capital gains; and in the same way, you will be able to deduct from your taxes, losses generated during the fiscal year.
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