Limited Liability Company
- Combines the liability protection of a corporation with the flexibility and simplicity of a sole proprietorship or partnership.
- Governed by an Operating Agreement.
- LLCs offer a flexible management structure. They can be managed by their members.
Corporation
- More formal structure with shareholders, directors, and officers.
- Must follow company rules, hold yearly meetings, and keep written notes of what was discussed.
- Ideal for businesses seeking outside investors or planning to go public.
Liability Protection:
LLC: Owners/ members are not personally liable for business debts or lawsuits
Corporation: Shareholders have limited liability, meaning their personal assets are protected from business obligations
In both cases, liability protection shields personal assets, but the structure and compliance differ.
Taxation:
LLC: Pass-through taxation by default (profits/losses pass through to the members’ personal tax returns). However, there is an option to select S-Corp or C-Corp taxation for potential tax advantages.
Corporation: C-Corps are taxed separately from their owners and may face double taxation (corporate income and shareholder dividends). On the other hand, S-Corps avoid double taxation but must meet specific IRS criteria.
Management Structure:
LLC: Offers a more flexible management structure, which can be member-managed or manager-managed. Still, LLCs must follow set rules, meet once a year, and write down what happens in the meeting.
Corporation: In contrast, a corporation is required to have a board of directors, corporate officers, and hold regular board/shareholder meetings.
Raising Capital:
LLC: An LLC can raise capital by adding new members or applying for business loans and lines of credit. However, because LLCs do not issue stock, they are often less appealing to investors, particularly venture capitalists and angel investors, who typically prefer equity ownership. Therefore, LLCs are usually better suited for small businesses or partnerships that do not plan to seek large amounts of outside investment.
Corporation: A corporation can raise capital by selling stock to investors; as a result, it is easier to attract venture capital and other outside funding. When structured as a C corporation, it can offer different classes of stock, which adds flexibility for investors. This structure is especially appealing to startups or businesses planning to grow rapidly, scale operations, or eventually go public, making it a strong choice for those seeking significant investment.
LLC Requirements in Virginia:
- Annual fee with the SCC
- No annual meeting or minutes required (but recommended)
- Less paperwork overall
Corporation Requirements in Virginia:
- Annual reports and fees
- Required board/shareholder meetings
- Maintain corporate records and bylaws
Overall, corporations have stricter compliance requirements than LLCs.
Speak With an AC Rieman Business Lawyer Today
Ultimately choosing between an LLC and a Corporation in Virginia depends on your business goals, growth plans, and desired level of formality. If you’re starting a small or medium-sized business with minimal outside investment, an LLC might be the ideal choice. However, if you plan to raise capital, issue stock, or go public one day, a Corporation could be the better fit.
At AC Rieman Law, we specialize in helping Virginia entrepreneurs form the right entity for their business. Whether you’re leaning toward an LLC or a Corporation, we’ll help you file correctly and stay compliant. Contact us today for a free consultation and take the first step toward building your business on a solid legal foundation.