Simplicity and Low Cost of LLCs vs. Corporations

When comparing the limited liability company (LLC) and the corporation, it becomes obvious that one form is much easier to administer than the other.

The LLC was created precisely to provide a simpler and lower-cost alternative to the corporation. The best element of the corporation, limited liability for all of the owners, was combined with the simplicity and low cost of operation of the general partnership (and sole proprietorship). The concepts of simplicity and low cost of operation are not simply restricted to low fees charged by a state or tax implications. The statutory framework that governs the operation of corporations, termed the "corporate formalities," is much more complex and burdensome than what is imposed on LLCs.

Specifically, the statutory rules governing corporations impose fairly strict requirements regarding directors, officers, meetings, etc. In an LLC, these rules are usually relaxed. Thus, in the LLC, the cost of compliance is lower, and there will be less likelihood of costly mistakes. Remember, a failure to comply with the applicable formalities of your entity choice can lead to a court's "piercing the veil" of limited liability and imposing unlimited, personal liability on the owners. With the LLC, this result is much less likely.

On the other hand, a statutory close corporation enjoys some of these same advantages. For this reason, where a corporation is considered, it should usually be organized as a statutory close corporation.

The Delaware LLC statute, in particular, provides incredible flexibility and simplicity in forming and operating the LLC. It has no counterpart in statutes governing corporations (or for that matter, in LLC statutes) found in other states. For instance, several states allow the forming of an entity within an entity, thus eliminating the need to form separate LLCs (or corporations) for each separate operating activity carried out by the business.