Differences Between Corporations and Limited Liability Companies in Structure and Management
The owners are shareholders and receive stock
certificates. The shareholders elect the board of directors annually.
The board of directors sets the general
direction of the corporation and votes on major decisions, but does not engage
in day-to-day management. It also elects/fires the officers on an as-needed
In California, if a corporation has one
shareholder, there only needs to be one director (but there can be more). If a
corporation has two shareholders, there needs to be at least two directors (but
again, there can be more). If a corporation has three or more shareholders,
there needs to be at least three directors (but there can be more). (California
Corporations Code Section 212.)
The officers run the business on a day-to-day
In California, three officers are required:
President, corporate Secretary and CFO/Treasurer. Other officer positions –
CEO, Vice President, etc. – are optional. One person can fill all three (or
two of the three) required positions, but banks often require that different
fill the President and Secretary positions unless there is only a single
California corporations must hold one
shareholders meeting annually and it is strongly recommended that they hold at
least one board of directors meeting annually (actually, the resolutions simply
can be signed by all directors) and whenever a major decision needs to be made.
With a corporation, each owner has the same
percentage of ownership, voting power and, if the corporation is a Subchapter S,
profits and losses.
Limited Liability Companies (LLC’s)
LLC’s generally do not have shareholders,
directors or officers. (Although an LLC can be organized to have these, it’s
The owners of an LLC are members and frequently
have membership "units".
LLC’s can have one of two management
structures: member-managed – where each member takes an active role in running
the business and can sign contracts (like a general partnership) -- and
manager-managed – where one or more managers operate the business and sign
contracts (like a limited partnership). In any case, no meetings of the managers
or members are required to be held.
Often the operating agreement requires that
extremely major decisions (such as sale or dissolution of the LLC) be made by a
majority or super-majority (more than 50%) of the ownership interests.
With an LLC, an owner can have different
percentages of ownership (meaning the percentage of proceeds if the LLC is
sold), voting power and profits and losses. For example, an LLC owner can have
25% of the ownership (meaning 25% of the proceeds if the LLC is sold), 10% of
the voting power and 5% of the profits and losses.