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Corporations and Limited Liability Companies (LLCs) are entities created by law that essentially have the same rights as a natural person.

For our purposes, these entities are one means of providing for the continuation of your finances and business interests if you become unable to. They are also a means of passing assets to your heirs without the assets held in the entities being subjected to probate.

The discussion that follows is only a general overview to help you' figure out if one of these entities would satisfy your needs. If you are considering creating a corporation or a LLC, it is advisable to consult  with an attorney with experience both in estate planning and corporate work. Your needs are different than those of people who set up an entity for their business, which is the norm for "how to" books and web sites.

What Is A Corporation?

A corporation is a legal entity that has its own rights, powers, privileges and liabilities governed by the state in which it is incorporated. It is separate from its owners.

The life of a corporation can be perpetual.

The life of its owners is not relevant. If a shareholder becomes incapacitated or dies, it does not affect the business or duration of the corporation.

Owners of a corporation are shielded from personal liability for the actions of the corporation. For example, owners are not individually liable for debts of the corporation, such as a lease obligation or loan payback.

Owners of a corporation are generally referred to as shareholders or stockholders. They in turn appoint a board of directors to oversee the business of the corporation. The board of directors appoints the officers who actually run the entity on a day-to-day basis.

For tax purposes, there are different types of corporate entities.

  • C-corporations are taxed as a separate entity, at corporate rates. The shareholders are then taxed at their individual rate on any dividends they receive.
  • An S-corporation is only taxed once: to shareholders at their individual rates. Shareholders pay taxes on all profits earned, whether the profits were distributed as dividends or not.

What Is A Limited Liability Company?

A Limited Liability Company (usually referred to as an "LLC") is a legal entity that, like a corporation, has its own rights, powers, privileges and liabilities governed by the state in which it is created.

An LLC combines the limited liability aspects of a corporation with the pass-through taxation of a partnership. 

  • An LLC is separate from its owners/members.
  • Like a corporation, in an LLC, owners are shielded from personal liability for actions of the LLC.
  • Like a partnership, all profits and losses pass directly to its owners. There is no separate income tax on the entity itself.

LLCs are generally subjected to fewer restrictions than corporations.

A board of directors is generally not required.

LLCs are relatively new entities in the United States. The law concerning LLCs is not as settled as the law relating to corporations.

What Are The Pros And Cons Of Using A Corporate Entity?


  • A corporate entity is separate and distinct from its owners. The owner's health or legal capacity does not affect the ability of the entity to carry on its business.
  • A corporate entity may exist perpetually. The death of an owner does not affect the life of a corporate entity.
  • Limited liability for shareholders.
  • Incorporation can be done quickly if necessary -- even within 24 hours.
  • The laws are mostly settled concerning corporations, both from the point of view of tax and liabilities of shareholders, directors, and officers. The laws are not as settled with respect to LLCs.
  • A corporation eliminates the self-employment tax which is a tax payable by individuals engaged in business and by active members in a limited liability company.


  • There may be expense involved in transferring title to assets to the entity.
  • Costs of incorporation and ongoing administration. Entities require a separate set of books, bank accounts and tax returns. Filing fees must be paid to the state's appropriate agency.
  • Corporations can have double taxation on earnings -- first when earned by the corporation and then when distributed as dividends to shareholders.
  • Ongoing legal formalities must be followed.