LLC vs. Corporation: Which Is Better for Your Business?
Feb. 13, 2026
Starting a business in Michigan often requires a significant early decision: whether to form an LLC or a corporation. Both can create a separate legal entity for your company, but they operate differently in day-to-day operations, tax matters, and long-term planning. The right choice usually depends on what you are building, who will own it, and how you expect it to grow.
The Law Office of Blake P. Lipman in Farmington Hills, Michigan, helps business owners evaluate entity options in Farmington Hills, Oakland, Wayne, Macomb, and the greater Detroit Metropolitan Area. If you are weighing an LLC versus a corporation, it helps to look at how each structure handles ownership, liability, taxes, and ongoing responsibilities. Contact the firm today for more information.
How an LLC and a Corporation Differ at a Glance
An LLC is often seen as flexible because it can be run by its owners or by managers, and it typically uses an operating agreement to define rules. A corporation follows a more formal structure, with shareholders, a board of directors, and officers who manage daily operations. Both can be a strong fit, but the structure you pick can affect everything. The following are some of the core differences people consider when deciding which structure fits their goals:
Ownership structure: An LLC is owned by members, while a corporation is owned by shareholders; this difference can shape how ownership interests are issued, transferred, or inherited.
Management approach: LLCs can be member-managed or manager-managed, whereas corporations typically separate ownership from control through a board of directors and officers.
Formality level: Corporations typically use more formal governance procedures, while LLCs often set many internal rules in the operating agreement.
How profits are handled: LLCs often have flexible profit allocations, while corporations generally distribute profits through dividends based on share ownership.
Continuity over time: Corporations typically have a clear path to continue as ownership changes, while LLC continuity depends on the operating agreement.
Once you see the structural differences, the next question is usually about protection. People want to know whether one option better protects personal assets than the other, and what conduct can still create personal risk.
Liability Protection and Risk Management
Both LLCs and corporations are commonly used to separate business obligations from personal assets. That separation can help limit personal exposure to business debts and many types of claims, provided the entity is properly formed and operated.
Liability protection can weaken when owners mix personal and business finances, sign personal guarantees, or fail to follow basic entity practices. Courts will examine the facts if fraud is alleged or the business is undercapitalized relative to its activities. After considering liability, most owners turn to taxes because tax treatment can affect what you take home and how you plan to reinvest profits.
Taxes and Profit Distribution Choices
Taxes are one of the most significant practical differences between LLCs and corporations, and the answer often depends on how the business earns income and how owners want to be paid. Many LLCs are taxed as pass-through entities by default, meaning profits and losses flow to the owner’s personal return. Some examples include:
Pass-through taxation: Many LLCs use pass-through treatment, which can be straightforward for owners who want profits reported on personal returns.
Corporate taxation: A corporation may be taxed at the entity level, and owners may also pay tax on certain distributions, which can affect how profits are distributed from the business.
S corporation election eligibility: Some businesses may qualify to elect S corporation tax treatment, which can affect payroll planning and profit distribution.
Profit allocation flexibility: LLCs can sometimes allocate profits in ways that reflect contribution or agreement terms, while corporations often tie distributions to share ownership.
Owner compensation approach: Corporations often pay owners who work in the business through wages, and LLC owners may use different methods depending on tax classification.
After taxes, many owners start thinking about growth. If you plan to raise capital, issue equity, or sell the company later, the structure can shape how smooth that path is. Reach out to a knowledgeable business law attorney to learn more about your options.
Raising Money and Planning for Growth
Corporations are often used when a company expects outside investment, multiple shareholder classes, or a more formal equity structure. Stock can be issued in standardized ways, and ownership can be transferred by selling shares, which some investors prefer. LLC membership interests and operating agreement terms can add extra layers to negotiations.
Growth planning also includes your exit options. If you think you may sell the business, bring in a partner, or pass ownership to the family, it helps to consider how transfers work and what approvals will be needed. Those questions lead naturally into governance, because governance rules are what keep day-to-day decision-making clear when there is disagreement.
Paperwork, Governance, and Ongoing Duties
Many owners choose an LLC because it can be easier to tailor internal rules, but it still requires intentional setup and consistent habits. Corporations often require more formal governance processes, but these processes can also provide structure as ownership grows or investors come in. To stay on solid footing, these are some common governance and maintenance areas owners should think about early:
Governing document setup: An LLC typically uses an operating agreement, while a corporation uses bylaws and shareholder terms, and each should reflect how the business will operate.
Decision documentation: Written consents, resolutions, and key records help demonstrate that the business operates as a separate legal entity, which matters if disputes arise.
Separation of finances: Separate bank accounts, contracts in the business name, and clean bookkeeping help support the liability separation people form entities for.
State filings and updates: Ongoing reports, registered agent details, and other state-level obligations may apply; missing them can create avoidable problems.
Authority clarity: Clear rules for who can sign contracts, borrow money, or add owners can prevent internal conflict later.
Once you have a sense of the required upkeep, the final step is to match the structure to your real-world situation. That often comes down to ownership style, growth plans, and tolerance for formality.
Reach Out to a Business Lawyer Today
The Law Office of Blake P. Lipman serves clients in Farmington Hills, Michigan, as well as Oakland, Wayne, Macomb, and the greater Detroit Metropolitan Area. If you are deciding between an LLC and a corporation, an experienced business lawyer can review your goals, ownership plans, and risk concerns, then explain how your choice may affect taxes and governance. Call the Law Office of Blake P. Lipman to talk through the next steps.