LLCs and Corporations: What are the Core Differences Between Them?

When it comes to starting or forming a business, a lot of business owners give little thought as to whether to form their business as a corporation, or as an LLC, which itself is a kind of corporation. But what makes an LLC different from the numerous other kinds of corporate structures?

Governing Documents

One thing that is both common and the same, is the LLC’s management agreement or operating agreement. While a corporation’s rules are set forth in their bylaws, these rules that dictate how the company runs and what it can and cannot do in an LLC are part of the LLC’s management agreement.

Boards of Directors and Shareholders

Management of an LLC is also different in that an LLC does not have a board of directors the way that a company does. LLCs can have a board if they so choose, but they are not required to do so. Unlike a company, an LLC is usually run by its managers.

If there are only a few managers, then the managers run the company the way a board of directors would—holding meetings, voting, etc. But in larger LLCs, where there may be many managers, the LLC may need to adopt a board or some other structure, to allow decisions to be made more efficiently.

In many ways, members of your LLC are like shareholders in a traditional company. They will make decisions about the company, and reap benefits when the company does well. Your management agreement will dictate how managers get paid, when they get paid, and what calculations of company profits actually qualify as profits to be distributed.

Voting Rules

Because members who are making decisions on company policy in an LLC may also be interest holders in the LLC, like a shareholder, the LLC must have rules as to voting. Many LLCs prefer each member to get one vote, while others will weigh voting, allowing members with a greater ownership stake to have more votes, or heavier weighted votes. Note that this is unlike a company, where shareholders usually have the same vote, if they are within a voting class of owners.

Oversight and Succession

There is more oversight in a corporation or company, than there is with an LLC, which can be a pro or a con.

A corporation has shareholders, and a board of directors, all independent from corporate officers, and thus, they act as a shield from officers or even owners, who may be corrupt, or who may not be pulling their weight, or who, for some other reason, may be bringing down the company.

But an LLC doesn’t work that way—all there are, are LLC members (assuming the LLC has not opted for a board of directors). That means that it can be harder to get rid of underperforming members or those who aren’t doing their job, or even those who may be violating their fiduciary duties to the LLC.

It also means that when you leave the LLC, voluntarily (such as retirement or sale) or involuntarily (such as with death divorce, or bankruptcy), your interest or share in the LLC may not pass to the people you designate as easily as it would in a traditional company.

Let us help you with the crucial decisions involved in starting your company. Call our Fort Lauderdale business litigation lawyers at Sweeney Law P.A. at 954-440-3993 for help.

Source:

dos.fl.gov/sunbiz/start-business/corporate-structure/#:~:text=A%20limited%20liability%20company%20(LLC,comply%20with%20other%20corporate%20formalities.