Differences between LLC and Corporation

Last Updated at: November 04, 2019
906
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Understanding the difference between a corporation and limited liability partnership is crucial for business owners who are deciding upon registering their firm as one. This article illuminates the structural, suitability, incorporation, and taxation variations in the two to aid in one of the most crucial decisions of a trade.

Business goals are not one size fits all. There are several forms of business structures, LLC and Corporation being one of them. It is imperative to know the differences and advantages of several alternatives of business forms. While there may be similarities between a Limited Liability Company and a Corporation in the aspect of separation of property and limited exposure of risks of the owner, limited to the amount contributed by them, there are subtle differences in their dynamics in India. In this post, we identify the differences in structure, protection, asset base, ownership, and taxation.

Browse through our articles on servies provided at Vakilsearch, and just let us know if we can help you with your company registration or tax filing or trademark registration.

Structure: Members Vs Owners

In the case of Limited Liability Company, as the name suggests, there is a separation in the management and owners of the company. The members are the contributors to the capital of the company, however, their liability is ring-fenced to the amount contributed. In contrast, a corporation is a business form where a group of people in a corporate form, acting as a single entity. They’re the owners of the stock of the company and may be responsible for day to day management of the company, in cases where there may be no such division of responsibilities between contributors of capital and management.

Incorporation:

A limited liability company is a company with its registration in accordance with the Indian laws, more specifically the Indian Companies Act 2013. It is the Companies Act which also mentions Corporations, as a body incorporated or registered outside India. It, however, does not include Central Government companies and Co-operative societies. Thus, a Limited Liability Company would be amenable to all laws in force in India that apply to Indian companies, such as SEBI regulations, Indian Contract Act etc. However, some laws in India may not apply to a foreign corporation unless they specify so.

Suitability:

While a Limited Liability Company is a Private Company, suitable for small businesses or manufacturing sector, or a type of business that would want to run without governmental interference. However, large businesses having their presence over multiple continents often choose to incorporate themselves into a Corporation. It is often seen that municipal and administrative divisions constitute a corporation because of the breadth and intensity of day to day involvement in the running of the organization.

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Taxation:

The most crucial and defining aspect that separates a Limited Liability Company from a Corporation is the taxation aspect. In India, a domestic Private Limited Liability Company is liable to pay 25 percent tax on its income for a turnover up to 250 crores and 30 percent beyond that, with additional surcharges also applicable if the income crosses the thresholds prescribed by the Finance Act, amended every year. However, when it comes to corporations, it may liable to taxation as a foreign company – that is a company which is not registered in India and has operations and control outside India. A foreign company, however, will be taxed only on the income received in India or that which arises or accrues in India.

In the United States, the lines of differences between a Company with limited liability and a body corporate calling itself a corporation may be rather blurred.

In addition, there may be differences in legal compliances, costs and the processes of setting up, based on where the corporation is intended to be established. The address of the head office and place of management may also affect the dynamics of taxation, particularly when it comes to international taxation of corporate profits.

While an LLP is suitable for small businesses or manufacturing sector, Corporations are ideal for bigger businesses. An LLP pays only 25 to 30% tax, depending upon turnover, a corporation pays tax like a foreign company. To summarise, the differences between an LLP and a corporation are vast.

Differences between LLC and Corporation

906

Understanding the difference between a corporation and limited liability partnership is crucial for business owners who are deciding upon registering their firm as one. This article illuminates the structural, suitability, incorporation, and taxation variations in the two to aid in one of the most crucial decisions of a trade.

Business goals are not one size fits all. There are several forms of business structures, LLC and Corporation being one of them. It is imperative to know the differences and advantages of several alternatives of business forms. While there may be similarities between a Limited Liability Company and a Corporation in the aspect of separation of property and limited exposure of risks of the owner, limited to the amount contributed by them, there are subtle differences in their dynamics in India. In this post, we identify the differences in structure, protection, asset base, ownership, and taxation.

Browse through our articles on servies provided at Vakilsearch, and just let us know if we can help you with your company registration or tax filing or trademark registration.

Structure: Members Vs Owners

In the case of Limited Liability Company, as the name suggests, there is a separation in the management and owners of the company. The members are the contributors to the capital of the company, however, their liability is ring-fenced to the amount contributed. In contrast, a corporation is a business form where a group of people in a corporate form, acting as a single entity. They’re the owners of the stock of the company and may be responsible for day to day management of the company, in cases where there may be no such division of responsibilities between contributors of capital and management.

Incorporation:

A limited liability company is a company with its registration in accordance with the Indian laws, more specifically the Indian Companies Act 2013. It is the Companies Act which also mentions Corporations, as a body incorporated or registered outside India. It, however, does not include Central Government companies and Co-operative societies. Thus, a Limited Liability Company would be amenable to all laws in force in India that apply to Indian companies, such as SEBI regulations, Indian Contract Act etc. However, some laws in India may not apply to a foreign corporation unless they specify so.

Suitability:

While a Limited Liability Company is a Private Company, suitable for small businesses or manufacturing sector, or a type of business that would want to run without governmental interference. However, large businesses having their presence over multiple continents often choose to incorporate themselves into a Corporation. It is often seen that municipal and administrative divisions constitute a corporation because of the breadth and intensity of day to day involvement in the running of the organization.

Ask for Free Legal Advice

Taxation:

The most crucial and defining aspect that separates a Limited Liability Company from a Corporation is the taxation aspect. In India, a domestic Private Limited Liability Company is liable to pay 25 percent tax on its income for a turnover up to 250 crores and 30 percent beyond that, with additional surcharges also applicable if the income crosses the thresholds prescribed by the Finance Act, amended every year. However, when it comes to corporations, it may liable to taxation as a foreign company – that is a company which is not registered in India and has operations and control outside India. A foreign company, however, will be taxed only on the income received in India or that which arises or accrues in India.

In the United States, the lines of differences between a Company with limited liability and a body corporate calling itself a corporation may be rather blurred.

In addition, there may be differences in legal compliances, costs and the processes of setting up, based on where the corporation is intended to be established. The address of the head office and place of management may also affect the dynamics of taxation, particularly when it comes to international taxation of corporate profits.

While an LLP is suitable for small businesses or manufacturing sector, Corporations are ideal for bigger businesses. An LLP pays only 25 to 30% tax, depending upon turnover, a corporation pays tax like a foreign company. To summarise, the differences between an LLP and a corporation are vast.

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Avani Mishra is a graduate in law from the National Law Institute University, Bhopal. She qualified the Company Secretary course with an All India Rank 1 and is a recipient of the President’s Gold Medal for her academic distinctions. She also holds a B.Com degree with a specialization in Corporate Affairs and Administration.