How is an LLC governed differently from a corporation?

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One of the first decisions new business owners face is what type of entity they should use to form their new company. Most likely, this involves a choice between a limited liability company (LLC) or a corporation. These two types of entities differ significantly in how they are governed. The overarching theme of the way corporations are governed is that they are formalistic and structured. In some situations, this can be beneficial. In a company with a significant number of owners or people involved in its governance, the corporate structure provides an established template for decision-making processes. If the company were to be governed more like a partnership, where each owner is actively involved in making decisions and executing them, company governance and decision-making could get chaotic. The disadvantages of the corporate form is that the formalities involved may be overkill for a small business with just one or a few active owners. The overarching theme of the way LLCs are governed is flexibility. Generally, the parties can organize an LLC however they would like. They can run it in the structured manner that a corporation is governed, run it informally, or operate some kind of hybrid of the two. LLCs permit a high degree of creativity in structuring a company.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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