I form a lot of Virginia limited liability companies and Virginia corporations for clients. When deciding what entity to operate a business under, one of the first questions is "what is the difference between a Virginia corporation and a Virginia LLC?" Here are my top five differences between the two:
- Cost: to form a Virginia corporation, the filing fee paid to the State Corporation Commission starts at $75.00 and the annual renewal fee starts at $100.00 (both depending on the number of authorized shares of the corporation. For a Virginia LLC, the filing fee paid to the Virginia SCC is higher – a flat $100.00 – but the annual renewal fee is $50.00, less than a corporation. So, in the long run, a LLC pays less in filing fees.
- Flexibility: LLC’s are less rigid in their structure than corporations, so you have more flexibility in adapting the LLC to your unique business. The Operating Agreement of a LLC (which you should definitely have if you are a LLC) can be structured in a limitless amount of ways.
- Annual Reports: Required for a corporation, not required for a LLC. Less paperwork = good thing.
- Formality: A corporation is a formal entity with officers and directors (at least one of each) required. A LLC, on the other hand, can be "member managed" and run in a less formal way. For small, start-up businesses, less formality means you can focus on making money rather than administrative work.
- Tax Benefits: LLC’s have more options as to how they are taxed. Corporationc can choose between taxation as a C corp or S corp (if they qualify) while a LLC can decide to be taxed as a sole proprietorship (if single owner) or partnership (multiple owners), C corp, or S corp. You can also switch your tax status as a LLC once every sixty months. More choices are usually better than less.
Those are my top five differences. I’m sure others out there might have additional differences. Just keep in mind that the major benefit of corporations and LLC’s are the same (assuming you formed your corporation or LLC correctly) – limited liability for the owners.