# LLC or corporation? Source: https://joinopenfile.com/guides/llc-vs-corporation Index: https://joinopenfile.com/llms.txt Both an LLC and a corporation keep the company's debts separate from its owners' own money, so that part is not the difference. The difference is ownership and tax: a corporation has stockholders, a board of directors and shares, and the IRS taxes its profit once at the company and again when it pays dividends, while an LLC has members and its profit lands on their personal returns by default. Owners with no outside investors usually take the LLC; a company that plans to sell stock needs the corporation, because stock is what a corporation issues.Updated November 13, 2026 ## Who owns and runs each one? An LLC's owners are called members. Delaware's LLC Act says that unless the LLC agreement provides otherwise, management is vested in the members in proportion to their share of the profits, with the holders of more than 50 percent deciding. Members can hand that to a manager instead, and the agreement is where they write it down. [Who owns an LLC](https://joinopenfile.com/guides/who-owns-an-llc) and [managing member](https://joinopenfile.com/guides/managing-member) cover the roles. A corporation's owners are stockholders, and they do not run it. Delaware's corporation law says the business and affairs of every corporation shall be managed by or under the direction of a board of directors, unless its certificate of incorporation says otherwise. The corporation also has officers, and one of them has the duty to record the proceedings of the meetings of the stockholders and directors in a book kept for that purpose. So a one-person corporation is still a stockholder, a director and an officer, all the same person wearing three labels. ## What do you file to start each one? For an LLC you file [articles of organization](https://joinopenfile.com/guides/articles-of-organization), called a certificate of formation in some states. Delaware's version asks for almost nothing: the name of the company and the address of its registered office with the name of its agent there. Everything about ownership stays in a private agreement. A corporation's certificate of incorporation asks for more. Delaware requires the name, the total number of shares the corporation may issue and the par value of each, or a statement that they have no par value, and the name and mailing address of the incorporator. If the incorporator's powers end when the certificate is filed, the first directors have to be named too. Both kinds need a [registered agent](https://joinopenfile.com/guides/registered-agent) with an address in the state. [Our state fee list](https://joinopenfile.com/llc/cost) has what each state charges for an LLC, and [corporations](https://joinopenfile.com/corporation) has the corporation side. ## How is each one taxed? The IRS has no tax class called LLC. An LLC with one member is treated as an entity disregarded as separate from its owner, and one with at least two members is classified as a partnership, so the profit is taxed on the owners' own returns either way. The SBA notes that members of an LLC are considered self-employed and pay self-employment tax towards Social Security and Medicare. A corporation files its own return, Form 1120, and pays 21 percent of its taxable income under section 11(b) of the tax code. The IRS puts the rest plainly: the profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends, the corporation gets no deduction for paying them, and shareholders cannot deduct any loss of the corporation. The IRS calls that a double tax. Neither default is locked in. An LLC can elect to be taxed as a corporation on Form 8832, and either an LLC or a corporation that qualifies can elect S corporation status on Form 2553, which passes the income through instead. [LLC or S corp](https://joinopenfile.com/guides/llc-vs-s-corp) works through that election, and [single-member LLC taxes](https://joinopenfile.com/guides/single-member-llc-taxes) covers the one-owner default. An accountant can tell you which way your numbers point. ## Does a corporation really need meetings and minutes? Yes, in substance. Delaware requires an annual meeting of stockholders for the election of directors, unless the directors are elected by written consent in place of one, and an officer has to keep the record of those meetings in a book. The SBA says corporations require more extensive record-keeping, operational processes and reporting than other structures. An LLC has no equivalent requirement in most states. The members decide how they meet and vote, and the [operating agreement](https://joinopenfile.com/guides/operating-agreement) is where that goes. That is the day-to-day reason small owners pick the LLC: the same liability shield with less to keep up. ## Is the liability protection different? Not really. Delaware's LLC Act says the debts, obligations and liabilities of an LLC are solely the LLC's, and no member or manager is obligated personally for them solely by reason of being a member or acting as a manager. Delaware's corporation law says stockholders shall not be personally liable for the payment of the corporation's debts except as they may be liable by reason of their own conduct or acts. Read the word solely in both. A loan you personally guarantee is still yours, and so is harm you cause yourself. Both statutes also let an owner take on the company's debts by agreement. Keep the money in a business account, and carry insurance either way, because neither structure pays a claim. [LLC pros and cons](https://joinopenfile.com/guides/llc-pros-and-cons) goes through the limits. ## Which one do investors want? The corporation, in almost every case. The SBA says corporations have an advantage when it comes to raising capital because they can raise funds through the sale of stock, which can also help in attracting employees. Delaware lets a corporation authorize more than one class of stock, which is what a priced round and an employee option pool are built on. Tax law pushes the same way. Section 1202 of the tax code only treats stock of a domestic corporation that is a C corporation as qualified small business stock, so the gain exclusion many investors look for is closed to an LLC's membership interests. The S corporation election does not substitute: the IRS caps it at 100 shareholders with one class of stock, and partnerships, corporations and non-resident alien shareholders are not allowed, which rules out most funds. ## What does each cost to keep? It depends on the state, and the two are not always priced the same. Mississippi charges $50 for an LLC certificate of formation and takes the LLC's annual report with no fee, while its corporations pay $25 for theirs. Nevada's state business license is $200 a year for an LLC and $500 for a corporation, on top of the annual list. [Our state fee list](https://joinopenfile.com/llc/cost) has the LLC filing fee and what recurs in all 51 jurisdictions, and [annual reports by state](https://joinopenfile.com/annual-report) has the deadlines. Put whichever one you pick on a calendar, because missing the report is how a company falls out of good standing. ## Can you switch later? Often, yes. Delaware lets an LLC convert to a Delaware corporation, and lets a Delaware corporation convert to an LLC, each under its own section of the law. Not every state offers both directions, and a few need a merger instead. The tax side is the part to get advice on before you file anything, because a conversion can be a taxable event for the owners. If you are weighing it because of investors, ask them what they need to see; many will accept an LLC today and a conversion at the round. ## Which one fits you? Take the LLC if you own the business with a few people you know, you want the profit on your own return, and nobody is buying stock. It is the cheaper structure to keep in most states and it asks for no board, no annual meeting and no minute book. Take the corporation if you plan to raise money from investors, issue options to employees, or you want the 21 percent entity rate because profit stays in the business. [LLC or S corp](https://joinopenfile.com/guides/llc-vs-s-corp) covers the middle path, where the entity is an LLC and the tax status is not. [Best state to form an LLC](https://joinopenfile.com/guides/best-state-to-form-an-llc) covers where, once you have settled on which. ## Questions Is an LLC or a corporation better for a small business? For most small businesses with no outside investors, the LLC. It gives the same liability shield, puts the profit on the owners' returns by default, and asks for no board, annual meeting or minute book. A corporation is the better fit when you plan to sell stock. Is Inc the same as LLC? No. Inc is short for incorporated and marks a corporation, which has stockholders, a board of directors and shares. LLC marks a limited liability company, which has members and an operating agreement. They are different structures under state law. Can an LLC be taxed like a corporation? Yes. An LLC can elect corporate treatment with Form 8832, and an eligible LLC can elect S corporation status with Form 2553. Under state law it stays an LLC either way, with the same members, agreement and state reports. Does a corporation pay less tax than an LLC? Not usually, for a small business. A corporation pays 21 percent on its taxable income, and the IRS then taxes the same money again as dividends to the shareholders. An LLC's profit is taxed once, on the owners' returns. An accountant can run your numbers. Can an LLC have shareholders or issue stock? No. An LLC has members and membership interests, not shares. That is why section 1202 of the tax code, which only covers stock of a domestic C corporation, is closed to an LLC, and why priced rounds and option pools are built on corporations. Can I change an LLC into a corporation later? Often, yes. Delaware lets an LLC convert to a corporation and a corporation convert to an LLC, and many states have a similar conversion. A few need a merger instead, and a conversion can be taxable for the owners, so ask an accountant first. [Start my business for me](https://joinopenfile.com/signup?next=%2Fstart) $0 + state and processing fees. Takes seconds. ## Sources - [IRS: Limited liability company (LLC)](https://www.irs.gov/businesses/small-businesses-self-employed/limited-liability-company-llc) - [IRS: Forming a corporation](https://www.irs.gov/businesses/small-businesses-self-employed/forming-a-corporation) - [IRS: S corporations](https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations) - [SBA: Choose a business structure](https://www.sba.gov/business-guide/launch-your-business/choose-business-structure) - [26 U.S.C. 11, Tax imposed on corporations](https://www.law.cornell.edu/uscode/text/26/11) - [26 U.S.C. 1202, Qualified small business stock](https://www.law.cornell.edu/uscode/text/26/1202) - [Delaware General Corporation Law, Title 8 Chapter 1](https://delcode.delaware.gov/title8/c001) - [Delaware Limited Liability Company Act, 6 Del. C. Chapter 18](https://delcode.delaware.gov/title6/c018) ## Keep reading - [LLC or S corp?](https://joinopenfile.com/guides/llc-vs-s-corp) - [What is an LLC?](https://joinopenfile.com/guides/what-is-an-llc) - [LLC advantages and disadvantages](https://joinopenfile.com/guides/llc-pros-and-cons) - [LLC or sole proprietorship?](https://joinopenfile.com/guides/llc-vs-sole-proprietorship)