Advantages Of An LLC Over A Corporation

One of the prime advantages of an LLC over a corporation is that with an LLC you don't have the same formalities as a corporation. Corporations are legally required to have meetings with their shareholders and board of directors. Corporate minutes must be taken and an annual report has to be filed with the state. This does not need to be done with an LLC. So, paperwork is reduced. LLCs do not have ownership restrictions. An S corporation is not allowed to have more than 100 stockholders and they must be a U.S. citizen or resident. LLCs may use the cash method of accounting. Many times, C corporations are required to use the accrual accounting method where income is not earned until the point it is received. Membership interest in an LLC can be placed in a living trust. It is very difficult to put S corporation shares into such a trust. With an LLC, losses are deductible. If a members is an active member in the LLC's business they can deduct the business' operating losses towards their regular income (as permitted by law.) S corporation shareholders are allowed to deduct operating losses but C corporation shareholders are not. LLCs are considered a "pass-through" entity when it comes to taxes, along the same lines as a partnership or sole proprietorship, avoiding double taxation. LLC owners do not have to pay unemployment insurance tax on their personal salary. But, an LLC may choose to be treated like a corporation for tax purposes if they want, either as an S corporation or a C corporation.