Sample Assessments

What are the differences between corporation and an LLC? Discuss the advantages and disadvantages of each.

“A limited liability company (LLC) is an unincorporated business entity that combines the most favorable attributes of general partnerships, limited partnerships, and corporations.” (Cheeseman, 2007, p. 367)

Limited liability companies are a relatively new type of business entity that combines the personal liability protection of a corporation with the tax benefits and simplicity of a partnership

Advantages of a corporation versus a limited liability company (LLC):

• Corporation profits are not subject to Social Security and Medicare taxes
• Corporations garner greater acceptance
• Corporations can offer a greater variety of fringe benefits with fewer taxes
• Corporations lower taxes through income shifting

Advantages of a limited liability company (LLC) versus a corporation:

• LLCs have fewer corporate formalities
• LLCs have no ownership restrictions
• LLCs have the ability to deduct operating losses
• LLCs have tax flexibility

References

Cheeseman., H. R. (2007). The Legal Environment of Business and Online Commerce: Business Ethics, E-Commerce, Regulatory, and International Issues (5th ed.). Upper Saddle River, NJ: Pearson Education, Inc.