# What is the benefit of a Corporation over an LLC? **URL:** \ **Category:** Factual Questions\ **Created:** [June 12, 2014, 10:30pm UTC](https://boards.straightdope.com/t/what-is-the-benefit-of-a-corporation-over-an-llc/690661 "2014-06-12T22:30:15Z")\ **Posts on this page:** 13\ **Page:** 1
**Author:** ![Lakai](https://avatars.discourse-cdn.com/v4/letter/l/9de0a6/32.png) [@Lakai](https://boards.straightdope.com/u/Lakai)\ **Post date:** [June 12, 2014, 10:30pm UTC](https://boards.straightdope.com/t/what-is-the-benefit-of-a-corporation-over-an-llc/690661/1 "2014-06-12T22:30:15Z")
I’ve been looking into opening an LLC for a family member. My understanding is that an LLC can elect to be taxed as a corporation if it wants, which means it will have the same liability protection and tax status of a corporation. Does that mean that the only benefit of forming a corporation is the ability to issue shares to raise capital? Are there other benefits? Otherwise it would seem like an LLC could be the equivalent of a closed corporation. ---
**Author:** ![LibrarySpy](https://avatars.discourse-cdn.com/v4/letter/l/f9ae1b/32.png) [@LibrarySpy](https://boards.straightdope.com/u/LibrarySpy)\ **Post date:** [June 12, 2014, 10:43pm UTC](https://boards.straightdope.com/t/what-is-the-benefit-of-a-corporation-over-an-llc/690661/2 "2014-06-12T22:43:37Z")
The LLC will limit assets to that of the company, but not really handle liability. You’ll need insurance for that. Is this family member going to have partners? The tax set-up for an LLC sole proprietor is really easy, that’s one advantage. ---
**Author:** ![Twoflower](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/twoflower/32/22_2.png) [@Twoflower](https://boards.straightdope.com/u/Twoflower)\ **Post date:** [June 12, 2014, 11:20pm UTC](https://boards.straightdope.com/t/what-is-the-benefit-of-a-corporation-over-an-llc/690661/3 "2014-06-12T23:20:05Z")
Corporations and LLCs have different rules about how profits are divided, whether an owner can also be an employee, and other such things. It varies by state, so you’d have to check yours for details. ---
**Author:** ![Sage\_Rat](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/sage_rat/32/399_2.png) [@Sage\_Rat](https://boards.straightdope.com/u/Sage_Rat)\ **Post date:** [June 12, 2014, 11:45pm UTC](https://boards.straightdope.com/t/what-is-the-benefit-of-a-corporation-over-an-llc/690661/4 "2014-06-12T23:45:43Z")
A book I read about this, which was trying to give a high-level overview of the different business structures without going in state-by-state technicalities, seemed mostly to imply that an LLC is pretty much free-form. You can do lots of different things with them, to tailor-make them to something which makes sense for your business. But the downside of that is that once you start looking for investors or start getting taken to court, all your free-form contracts and whatnot that define how everything works go under scrutiny and may not mean what you had intended or expected them to. Investors are going to feel a lot safer with a corporation, because they know exactly what they’re going into (what they own, how much they get paid for it, in what order people get paid, etc.). You know what’s going to happen, because you can find lawyers who specialise in and can explain it to you. But at the same time, as a corporation, you’re obligated to run your company in a way that probably doesn’t make sense if you’re a one-man business. There are also partnerships, single-owner businesses, and I think one or two further options (though it sounds like LLCs have replaced them). ---
**Author:** ![drachillix](https://avatars.discourse-cdn.com/v4/letter/d/48db29/32.png) [@drachillix](https://boards.straightdope.com/u/drachillix)\ **Post date:** [June 13, 2014, 1:11am UTC](https://boards.straightdope.com/t/what-is-the-benefit-of-a-corporation-over-an-llc/690661/5 "2014-06-13T01:11:19Z")
\<------ guy who shut down a corp recently and went sole prop unless you have a real good reason to incorporate or other similar structure dont do it It is 10x the paperwork and headaches. For a place with multiple owners, a few extra employees, hundreds of thousands in revenues, then maybe. Just about any random flunkie bookeeper can do a sole props taxes, you could even do them yourself if you like with about 30 minutes learning how to fill out a schedule C. A corp, unless you know a hell of alot more accounting and tax terminology than me, you will be paying someone $500 to file your returns AFTER everything is all cleaned up all I’s dotted , etc. ---
**Author:** ![Mr.Nylock](https://avatars.discourse-cdn.com/v4/letter/m/77aa72/32.png) [@Mr.Nylock](https://boards.straightdope.com/u/Mr.Nylock)\ **Post date:** [June 13, 2014, 1:19am UTC](https://boards.straightdope.com/t/what-is-the-benefit-of-a-corporation-over-an-llc/690661/6 "2014-06-13T01:19:59Z")
A lot of it depends on size. Once a business reaches a certain size, the advantages of incorporation are many. An S corp. is for good small businesses. There are significant tax differences; I worked once for a place that changed from sole prop. to corp. in order to avoid the tax on inventory. Every situation is different, so you would need to talk to an experienced accountant. The normal thing that happens is a small business starts out as a sole prop. or LLC and then incorporates once it grows to a certain size. ---
**Author:** ![LawMonkey](https://avatars.discourse-cdn.com/v4/letter/l/d6d6ee/32.png) [@LawMonkey](https://boards.straightdope.com/u/LawMonkey)\ **Post date:** [June 13, 2014, 1:38am UTC](https://boards.straightdope.com/t/what-is-the-benefit-of-a-corporation-over-an-llc/690661/7 "2014-06-13T01:38:55Z")
> [@Sage\_Rat](#): > > There are also partnerships, single-owner businesses, and I think one or two further options (though it sounds like LLCs have replaced them). …limited partnerships, limited liability partnerships, various specialized entities for professionals… Anyway, corporations and LLCs both offer limited liability, generally speaking; both, assuming the corporation can be an S-corp, allow for pass-through taxation so you don’t wind up taking a double hit. LLCs are more flexible in terms of how they’re governed/run; most of the default rules in the statute can be varied in the constituent documents. Corporations have less flexibility; the statutes tend to have more mandatory rules that you can’t opt out of. If you have hopes of going public one day, a corporation is probably a bit easier, but there are publicly-traded LLCs out there (not many, but a few). There are, without a doubt, bunches and bunches of tax reasons to favor one or the other that I am blissfully unaware of, because I am so very not a tax guy. IMO, talk it over with a lawyer (other than me, since I am not your lawyer, this is not legal advice, etc.) or accountant. You don’t have to have her draw up the paperwork if you don’t want to (though if we’re just talking about something fairly simple, it probably wouldn’t be that much more than the basic consult), but she can consider the situation and decide which form makes more sense (or if something else would be better, for that matter). ---
**Author:** ![Spavined\_Gelding](https://avatars.discourse-cdn.com/v4/letter/s/958977/32.png) [@Spavined\_Gelding](https://boards.straightdope.com/u/Spavined_Gelding)\ **Post date:** [June 13, 2014, 1:43am UTC](https://boards.straightdope.com/t/what-is-the-benefit-of-a-corporation-over-an-llc/690661/8 "2014-06-13T01:43:59Z")
The formation and operation and ramifications of having a limited company or a business corporation is dependent on the statutes of the state you are operating in. The rules vary from state to state. w ---
**Author:** ![Lakai](https://avatars.discourse-cdn.com/v4/letter/l/9de0a6/32.png) [@Lakai](https://boards.straightdope.com/u/Lakai)\ **Post date:** [June 13, 2014, 10:13pm UTC](https://boards.straightdope.com/t/what-is-the-benefit-of-a-corporation-over-an-llc/690661/9 "2014-06-13T22:13:57Z")
> [@LawMonkey](#): > > There are, without a doubt, bunches and bunches of tax reasons to favor one or the other that I am blissfully unaware of, because I am so very not a tax guy. > > IMO, talk it over with a lawyer (other than me, since I am not your lawyer, this is not legal advice, etc.) or accountant. You don’t have to have her draw up the paperwork if you don’t want to (though if we’re just talking about something fairly simple, it probably wouldn’t be that much more than the basic consult), but she can consider the situation and decide which form makes more sense (or if something else would be better, for that matter). We both don’t know of any decent lawyers. I’m also an attorney, so in theory I should be able to figure this out. What I’m perplexed by is the fact that an LLC can choose to be taxed as a corporation, which means that a corporation shouldn’t have tax advantages over an LLC. They also both provide investors with liability protection for personal assets. That leaves the only advantage for a corporation is its ability to raise capital by issuing shares. If that’s the case, then I’m wondering why do I see so many incorporated small businesses that don’t look like they are raising capital? ---
**Author:** ![smiling\_bandit](https://avatars.discourse-cdn.com/v4/letter/s/e9a140/32.png) [@smiling\_bandit](https://boards.straightdope.com/u/smiling_bandit)\ **Post date:** [June 14, 2014, 1:51am UTC](https://boards.straightdope.com/t/what-is-the-benefit-of-a-corporation-over-an-llc/690661/10 "2014-06-14T01:51:05Z")
> [@Lakai](#): > > If that’s the case, then I’m wondering why do I see so many incorporated small businesses that don’t look like they are raising capital? Probably because they are practically limited in their ability to raise equity capital. You could have six hundred partners, but it wouldn’t be very easy. So you are limited to debt-based finance once you reach a certain scale. On the flipside, many groups are preferring to sell out to a bigger company rather than go ahead with incorporation. Corporate formation dropped astoundingly in the wake of some of the post-Enron regulation, which has been to the benefit of existing large companies which have the capital advantages to buy up newcomers. And from the perspective of newcomers, meeting all the disclosure and informational regulations is a hell of a lot of work that’s just not worth it. ---
**Author:** ![What\_the](https://avatars.discourse-cdn.com/v4/letter/w/f4b2a3/32.png) [@What\_the](https://boards.straightdope.com/u/What_the)\ **Post date:** [June 14, 2014, 11:35am UTC](https://boards.straightdope.com/t/what-is-the-benefit-of-a-corporation-over-an-llc/690661/11 "2014-06-14T11:35:18Z")
> [@Lakai](#): > > We both don’t know of any decent lawyers. I’m also an attorney, so in theory I should be able to figure this out. > > What I’m perplexed by is the fact that an LLC can choose to be taxed as a corporation, which means that a corporation shouldn’t have tax advantages over an LLC. Are you sure that an LLC can choose to be taxed as a C-Corp? I could be wrong but believe that the option is to be taxed as an S-Corp. ---
**Author:** ![Lakai](https://avatars.discourse-cdn.com/v4/letter/l/9de0a6/32.png) [@Lakai](https://boards.straightdope.com/u/Lakai)\ **Post date:** [June 14, 2014, 12:21pm UTC](https://boards.straightdope.com/t/what-is-the-benefit-of-a-corporation-over-an-llc/690661/12 "2014-06-14T12:21:21Z")
> [@What\_the](#): > > Are you sure that an LLC can choose to be taxed as a C-Corp? I could be wrong but believe that the option is to be taxed as an S-Corp. From [IRS.gov](http://www.irs.gov/publications/p3402/ar02.html): > [@](#): > > An LLC with either a single member or more than one member can elect to be classified as a corporation rather than be classified as a partnership or disregarded entity under the default rules discussed earlier. File Form 8832, Entity Classification Election, to elect classification as a C corporation. File Form 2553, Election by a Small Business Corporation, to elect classification as an S corporation. LLCs electing classification as an S corporation are not required to file Form 8832 to elect classification as a corporation before filing Form 2553. By filing Form 2553, an LLC is deemed to have elected classification as a corporation in addition to the S corporation classification. ---
**Author:** ![What\_the](https://avatars.discourse-cdn.com/v4/letter/w/f4b2a3/32.png) [@What\_the](https://boards.straightdope.com/u/What_the)\ **Post date:** [June 14, 2014, 1:55pm UTC](https://boards.straightdope.com/t/what-is-the-benefit-of-a-corporation-over-an-llc/690661/13 "2014-06-14T13:55:06Z")
I stand corrected…