M&A Factoid - LLC and C Corporation

Limited Liability Company (LLC)

A Limited Liability Company is a type of corporate structure designed to limit the founders’ losses to the amount of their investment. It is a hybrid structure that combines the characteristics of a corporation and sole proprietorship. An LLC does not pay taxes like a traditional corporation; instead, its owners pay taxes on their proportion of the LLC profits at their individual tax rates. Unlike a corporation, an LLC must be terminated upon the death or bankruptcy of a member. An LLC is not an appropriate corporate structure if the company hopes to go public in the future. It should also be noted that the limits on liability could be exceeded if there is fraud.

C Corporation

A C Corporation or C-Corp is a type of ownership structure that allows any number of individuals or companies to own shares. It is a stand-alone entity that limits its owner’s legal and financial liabilities that may arise due to the actions of the company. In this type of corporation, income is taxed at the corporate level and is taxed again in the form of income taxes when it is distributed to its shareholders. While double taxation is a drawback of this corporate structure, the limited liability it provides to owners as well as the ability to reinvest profits in the company at a lower corporate tax rate are advantages of C Corporations. Once again, it should be noted that the limitation on liability could be exceeded if there is fraud.