What is the difference between a corporation and an by snq16054

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									What is the difference between a corporation and an LLC? In many respects a corporation and
company are identical. The differences and contrasts are listed below:

    1.   A corporation is a fictional legal entity that is:

                 a. Owned by its shareholders
                 b. Managed by a Board of Directors
                 c. Operated by its officers, who are selected by the Board of Directors
                     Typically, the officers include a president, one or more vice-presidents a secretary
                    and a treasurer.
                 d. Ownership of an interest in the corporation is evidenced by shares of stock issued to
                    shareholders for a price, typically approved by the Board.
                 e. Many corporations are “closely held”, that is, there is no ready market for the stock
                    and the owners are related, either by blood, marriage or are close acquaintance.
                 f.  There are certain formalities that corporations are supposed to follow. These include
                    holding regular meetings, giving notice of meetings to shareholder, directors or others
                    having a right to attend and keeping regular minutes of corporate actions. Often
                    closely held corporations do not follow all of these formalities and the formalities can
                    be waived if all persons entitled to act in a matter consent to waiving the formalities.

    2. What is a Limited Liability Company, or LLC?

         a.  An LLC, “Limited Liability Company” or “LC”, has owners who are not shareholders, but “unit
            holders”.
         b. An LLC or LC is referred to generically as a “company”.
         c. There are no officers and no formal board
         d. The unit holders elect one or more “managers” who run the day to day affairs of the company

    3.   Notes to remember:

         A. Protection against financial claims against an owner’s other assets may be of limited benefit,
            especially if the owner is involved in the day to day affairs of the business. As a result, it is
            wise to carry sufficient liability coverage or errors and omissions coverage as well as liability
            coverage for the directors and officers, which is a separate coverage.
         B. Owners also need to be careful in entering into financial arrangements regarding the entity.
            For example, if an owner guarantees an entity’s debt or obligation, the owner is liable for the
            debt.
         C. Since a company has a more informal setup, in theory a company should function with less
            formality than a corporation. In practice, this is seldom true and most LLCs and corporations
            function informally on a day to day basis.
         D. An LLC is superior to an S corporation if the entity wants to pass though profits or losses to
            owners, will have sophisticated mix of owners, such as trusts or other entities, or will have
            many owners. Quite honestly, I seldom run into these issues. Because an LLC is taxed like a
            partnership, it does have advantages if real property (land) is going to be held in the entity. In
            the event of a death, the deceased owner’s “basis” in the land is stepped up (or down) to date
            of death value, which can be advantageous if the land in the entity has appreciated over time
            and is sold after death.
         E. Keep in mind that if ownership of an entity is offered to a number of unrelated individuals or to
            individuals residing in more than one state, federal and state securities laws may apply,
            requiring certain written disclosures to potential investors. Also, Iowa limits the ownership of
            farmland by entities except entities that are “qualified” to own farmland in accordance with
            Iowa law.
         F. In summary, most small businesses that incorporate choose to pass though profits
            and losses and from a practical standpoint function informally, so from a tax
            standpoint and a day to day operating standpoint, are identical to an LLC. The two
            entities are also identical in the level of liability protection each can offer to owners
                      Corporation                                     Limited Liability Company, “LLC”


A corporation is formed by filing Articles of                A company is formed by filing a Certificate of
Incorporation with the Secretary of State                    Organization with the Secretary of State.


The operation of a corporation is set out in the             The operation of a company is set out in its
corporation’s Bylaws                                         Operating Agreement


Offers potential protection against claims                   Offers potential protection against claims
exceeding an owner’s investment in the entity.               exceeding an owner’s investment in the entity.


 Owned by shareholders, evidenced by shares of               Owned by “Unit Holders”
 stock issued to shareholders for a price, typically
 approved by the Board.



 Managed by a Board of Directors                             No officers or formal board



 Operated by officers, who are selected by the               Unit holders elected one or more “managers” who
 Board of Directors. Typically, a president, one or          run the day-to-day affairs of the company
 more vice-presidents, secretary and treasurer




                                                             An LLC is deemed to be a pass through entity; that
 Must hold regular meetings, giving notice of meetings       is, there is no way to pay taxes on a return for an
 to shareholders, directors or others having a right to      LLC. Just like an S corporation, the profits and
 attend. Keep regular minutes of corporate actions.          losses flow through to the owners.
The corporation’s profits and losses flow through to the
shareholders, generally in proportion to their
ownership interests and are not taxed at the entity
level. A corporation that has elected to cause its profits
or losses to flow through to the owners is referred to as
an “S” corporation, an allusion to the chapter of the
Internal
The corporation’s profits and losses flow through
to the shareholders, generally in proportion to
their ownership interests and are not taxed at the
entity level. A corporation that has elected to
cause its profits or losses to flow through to the
owners is referred to as an “S” corporation, an
allusion to the chapter of the Internal

 Must hold regular meetings, giving notice of
 meetings to shareholders, directors or others
 having a right to attend. Keep regular minutes of
 corporate actions.




Steven W Hendricks
Kersten Brownlee Hendricks LLP
Suite 700 805 Central Ave
PO Box 957
Fort Dodge, IA 50501-0957
Phone: 515-576-4127
Fax: 515-576-6340
hendriks@frontiernet.net

								
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