LLC Vs. Corporation: Similarities And Differences (2026)

What an LLC Is

What is an LLC? An LLC is a business entity tailored for closely held businesses with a limited number of owners called LLC members. LLC members have both ownership and voting rights.

What a Corporation Is

A corporation is a business entity flexible enough for either small or large businesses. Shareholders own the corporation and vote on some issues.

Tax Differences Between LLCs and Corporations

The IRS taxes business entities in two ways. In pass-through taxation, the entity is not taxed. Instead, the entity allocates its profits and losses to the owners, who pay income taxes on their share.

In corporate taxation, the entity is taxed. Owners are also taxed when the entity distributes profits or pays their salaries.

The drawback of corporate taxation is that revenue may be taxed twice: once when the entity receives it and again when the owner receives it. The benefit is that if the owners leave the profits in the company rather than paying themselves, they pay no personal income tax on the company’s revenue.

Pass-through taxation avoids double taxation. However, owners pay personal income tax on their share of the company’s profits, even if the company never distributes them. In other words, owners pay based on their paper profits, not the profits paid to them.

LLCs and corporations can elect pass-through or corporate taxation. When corporations elect pass-through taxation, they are called S corporations. They are called C corporations when they elect corporate taxation. Thus, corporate and LLC taxes are equally flexible.

Ownership and Raising Capital

Members own LLCs. Adding and removing members can be burdensome because LLCs generally do not have outstanding shares.

Shareholders own corporations. Adding and removing shareholders is relatively easy because a corporation can have outstanding shares.

LLCs raise capital by asking members to contribute or by creating a new membership share and selling it to a new or existing member. Corporations raise capital by selling outstanding shares to current or new shareholders.

Management and Formal Requirements

LLC members, an LLC manager or a combination of both may handle the LLC’s day-to-day operations. A board of directors and officers, who may or may not be shareholders, handle a corporation’s day-to-day operations.

LLCs generally have very few formal requirements. In many states, they must file an annual fee with updates to the LLC’s information. By contrast, corporations often have many formal requirements, including shareholder meetings, board of directors meetings and annual reports.

Pros and Cons of Each Structure

The benefits of an LLC are flexibility and member control. The benefit of a corporation is scalability.

When to Choose an LLC or a Corporation

Choosing an LLC or corporation involves trade-offs. A corporation is good for taking investments. An LLC avoids double taxation and can centralize control in the members.