Corporations vs. LLCs


Corporations vs. LLCs Print

Corporations have been around for about 150 years.  A Limited Liability Company (LLC), however, is a newer type of business entity used in the United States.  While LLCs existed as early as 1870 in Germany, they did not make it to the United States until 1977 when Wyoming enacted the first LLC statutes.  Limited Liability Companies became a popular form of entity in the 1990’s.  Arizona enacted its LLC statute in 1992.

Corporations are bound by strict guidelines regarding shareholders, officers, directors, meetings and annual reporting that, if not properly complied with, can result in personal liability of the shareholders,  dissolution of the Corporation and other grave consequences.

LLCs, by contrast, are designed to be more user-friendly to business owners, while providing the same personal asset protection as a Corporation.  The Arizona Limited Liability Company Act (the “Act”) does not require shareholders, officers, directors, annual meetings or filing an annual report.  An LLC is owned by a single or multiple members.  The LLC can be managed by the member(s) or the member(s) can appoint a manager or multiple managers to operate the company.

While the ACC does not require an LLC to hold annual meeting of either the members or the managers, it is prudent business practice to hold a company meeting at least annually.  The purpose of the company meeting is to document the company action that was taken over the course of the year.  If the LLC does not hold any meeting or fails to take notes of the meetings, there is no proof that any actions that were taken on behalf of the company.  Examples of actions to document include entering into a commercial lease, an equipment lease, hiring a professional service provider and  setting up benefit plans.  In the event the company fails to take minutes of its meetings, the company’s third party claimants or creditors could then make an argument placing personal liability on the owners, or members, of the company.   It is, therefore, a good business practice to keep careful notes of all action taken and keep the notes with with your corporate records.

For more information:

  • Our Overview of Structures gives some basic information on all Business Structures (including Corporations and LLCs).
  • Our Entity Comparison Chart demonstrates side-by-side the similarities and differences between Corporations and LLCs.