Whether you are looking to form a new business, or perhaps you are seeking personal liability protection by “upgrading” your existing business entity, you may find yourself wondering what is the difference between an Iowa Limited Liability Company (LLC) and a traditional Iowa Corporation (C-corp). Here are three key differences between an Iowa Company (LLC) and an Iowa Corporation (Inc.):
- Single Taxation v. Double Taxation LLCs may be treated as “pass-through” entities at the election of its owners. In other words, the members (i.e. owners) of an LLC are allowed to pass their share of the company’s profits to their personal income tax return. A corporation on the other hand has two layers of taxation. A corporation’s first tax level occurs when the company files taxes as a business. The second tax occurs after dividends are paid to the corporation’s shareholders, who are then required to pay taxes on dividends received from a corporation on their personal income tax return. In short, while members in an LLC can take advantage of a single layer of taxation, shareholders in a corporation cannot.
- Legal Formalities Iowa business law requires corporations to follow many more formalities than their LLC counterparts. For example, corporations must maintain certain books and records of the corporation, including minutes from all director and shareholder meetings Comparatively, LLCs are not required to maintain minutes from meetings that occur. Similarly, while a corporation is generally required to have an annual meeting, there is no such formal requirement for LLCs. Additionally, while LLCs are not required to create financial statements that detail the company’s financial status, corporations are required to prepare annual financial statements for its shareholders.
- Management Structure Members in an LLC can elect to manage the LLC’s daily affairs. Alternatively, the members can also choose to hire non-member managers to oversee day-to-day activities. Such flexibility allows an LLC’s owners to participate in managing the company. Comparatively, corporations have rigid management structures that must be followed and which consist of shareholders, directors, officers and employees. As a result of such rigid structures, unlike an LLC, the owners (i.e. shareholders) do not necessarily participate in managing the entity, which in a corporation is generally left to elected directors and officers.