The differences between LLC and corporation. Which is better?

The corporation corresponds to the Italian SpA while the LLC is a corporation taxed by transparency. The LLC does not correspond to the SRL

A question we are often asked by those who are thinking of opening a corporation in America. The main difference between LLC and Corporation is that:

1. The LLC is a pass through entity that does not file a tax return,
2. In the LLC, income is taxed in the hands of the partners, and all income earned is deemed to be distributed,
3. LLC members are not eligible for benefits under Section 1202 of the IRC [Internal Revenue Code] in the event of liquidation of the company.
4. The Corporation corresponds to the Italian SpA and files income tax returns,
5. As a Corporation, only any dividends paid are considered distributed.

LLC and Corporation are both capital companies but with profound differences between them

We cannot say absolutely that either the LLC or the Corporation is better, it all depends on the type of business you intend to conduct in America through the corporation

One question that always comes up when we talk to our clients who are considering opening a company in the United States is whether it is better to open an LLC or a corporation. There is no right answer to this question. Which type of corporation to open depends on a number of operational factors as well as tax and personal considerations. In this article we review the differences between LLCs and corporations and highlight the factors that militate in support of opening an LLC or corporation. As always, we will focus on the basics without going into operational or theoretical detail related to these two types of companies: the purpose is to give you the key information to decide whether it is best to open an LLC or corporation depending on your specific situation.

What is an LLC?

The LLC offers an alternative for those who want to conduct business in the United States without the formal complexities of the corporation

We need to be clear here: the corporation has more formal obligations than the LLC -- shareholder meetings, board meetings, the need to have a board of directors, and the need to adopt resolutions in a formal way by writing a document describing them.

And that's it: there are no other formal obligations. We can understand that this may seem like a lot to those born and raised in America, but it's nothing to those from Italy. So yes, the LLC has less formality than the corporation, but as we have seen even the corporation doesn't have that much to keep up with. In the case of unincorporated LLCs [with a sole shareholder] the limitation of personal liability is a controversial issue, and perhaps the formalities to pay attention to are even more stringent than in the case of the corporation.

What are the characteristics of the LLC?

• Limitation of liability - Like the corporation, the LLC is also a capital company and thus offers the typical limitation of liability: the liability of the corporation is limited to the value of the assets of the corporation, and the members are NOT liable for the obligations and debts of the company [LLC or corporation] out of their personal assets.
• Ability to open unincorporated LLCs [but not in California or Massachusetts]
• Management: the management of LLCs can be handled by LLC members or can be delegated to non-member managers.
• The LLC is "transparent", or a "pass through entity". It means that the LLC's income is taxed directly in the hands of the partners [more on this in the next section on taxation]

What are the characteristics of corporations in America

The quickest answer is that the U.S. corporation corresponds to the Italian SpA while the LLC is a corporation taxed for transparency

Lawyers, accountants, law professors and scholars will turn their noses at this oversimplification, but for us humble people I would say that the simplification captures 90% of the reality. Let it be clear then that the correspondence between LLC and SRL is just an urban legend, because the LLC does not correspond to the Italian SRL. Meanwhile, the corporation in America IS the SpA in Italy, with some significant simplifications:

• No minimum share capital requirement;
• No Board of Auditors;
• No notes to the financial statements.
• Participation in the corporation is represented by shares, as in the case of Italian SpAs.
• Possible to open a uninominal corporation with only one shareholder.
• Mandatory corporate offices: President, Treasurer and Secretary.
• Mandatory to have a Board of Directors even if it consists of only one member [Sole Director]