LLC, Corporation S or C
The three main types of entities formed in the state of Delaware are LLC, C Corporation and S Corporation. While the laws governing these entity types may differ, they all receive the same advantages and oversight provided by the Secretary of State Division of Corporations, DGCL, and Court of Chancery.
The main difference between LLCs and Corporations is their structure. A Corporation is governed by Shareholders, Directors, and Officers. Shareholders are the owners of the corporation; Directors are individuals appointed by the Shareholders who oversee the operation of the corporation and act on behalf of the Shareholders; Officers are appointed by the Directors and consist of a President, Vice President, Secretary, and Treasurer. In contrast, an LLC is governed by Members. Members of LLCs are owners, and may be an individual or a separate entity. LLCs may also include Managers. Managers are generally elected to oversee the operations of the company, similar to Directors for Corporations. The roles and responsibilities of Members and Managers must be clearly stated in the LLC’s Operating Agreement. For LLCs and Corporations, a single individual may hold all positions. Meaning, one person may be the Shareholder, Director, and Officers of a Corporation; and they me be the sole member of an LLC.
The second main difference between LLCs and Corporations are their tax status. By default, a Corporation is known as a C Corporation. C Corporations are obliged to pay taxes on business profits every year, and may choose to distribute dividends to the shareholders. If a shareholder does receive dividends, they are then responsible for paying taxes on the money received. To avoid being taxed twice, a C Corporation with less than 100 shareholders may choose to file for Subchapter S Tax Status, or S Corporation. As an S Corporation, the entity is not required to pay federal taxes; but the shareholders are then taxed based on the profits and losses of the company. LLCs are taxed like S Corporations, making the Members and Managers liable for taxes based on the entities profits and losses.
The third significant source of difference between Corporations and LLCs in Delaware is privacy. Each year Corporations in Delaware are required to file an Annual Report that lists the names and addresses of all Directors, the name and address of one Officer, and the address of the corporation’s principal place of business. In contrast, an LLC is not required to file this Annual Report. However, the Registered Agent of the LLC is required to possess the name of a Communications Contact. This may be a Member, Manager, the company’s attorney, or a mere a representative of the LLC.