The Differences Between a Corporation and a Business

A business is defined generally as an unincorporated company or corporation organized for the purpose of conducting commercial, industrial, or other financial activities. Companies may be either for-profit or non-profitable entities that conduct public works or activities to meet a social cause or further an educational purpose. In the United States, corporations are generally limited by law to running only for profit. However, some states allow corporations to engage in political action and lobbying. There are also a few international examples.

Public companies generally follow one of two formats; a C corporation or a D corporation. Under the US corporation law, a C corporation can issue stock and have unlimited liability while and corporation is limited to the amount of money it can issue shares with and has to be registered as a publicly held company. Although most corporations can start up for minimal costs, most small businesses cannot without the help of partners or investors.

LLCs or limited liability companies are another example of a corporation. An LLC is not legally recognized as a business because it does not have share ownership, property ownership, or investment possibilities like a corporation. Limited liability companies are not taxed like corporations and are only taxed when the business makes a profit. Business owners can avoid double taxation by using an LLC.

As an LLC, there are some similarities to corporations. An LLC can issue stock and has limited liability. The main difference between an LLC and a corporation is that a LLC is only required to file federal reports, and can have lower tax rates than corporations. LLCs do not have to register for state income taxes, though they are at risk for paying franchise taxes if they do not participate in a franchise system.

The formation of an LLC versus a corporation requires many of the same things, though there are slight differences. LLCs are not subject to the double taxation clause found in corporations. This means that businesses are not required to pay corporate taxes on their ownership or dividends unless the owners are also personally liable for those taxes. Businesses are also not required to report their federal income taxes unless they elect to do so on a yearly basis. Because of this freedom from annual reporting, an LLC is often considered a more preferable option when compared to corporations.

Businesses may incorporate to protect themselves against double taxation. By forming two separate businesses, they can avoid being subjected to double taxation on their income and assets. Most large businesses form general partnerships to protect themselves from liability, debts, and other liabilities that may be incurred by or accrued to the business. Some of the risks inherent in a general partnership include dilution of assets, distribution of the company’s earnings, and transfer of control. General partnerships are only allowed to undertake activities with other companies and cannot carry out advertising campaigns on behalf of other companies.

Limited partnerships are formed to undertake particular businesses. When the partnership is created, all the partners are jointly and severally liable for the operation and management of the partnership. This means that if one partner is negligent and causes a breach in the performance of the partnership’s obligations, all the other partners are individually and severally liable. Liability is limited to the extent of the partnership’s liability and is usually determined by the Court.

A limited liability company has many advantages. Because the business is a partnership, it is easier to build a successful business than a sole proprietorship. Many small businesses may use a limited liability company as their main business or an auxiliary business to help them conduct other businesses. If the company does not create enough money or losses and becomes dormant, the partnership does not lose its liability and it is able to continue trading until the company is again active. In some ways, it is even more similar to a partnership than it is to a corporation.