There are two types of corporations: C Corporations (or C Corps) and S Corporations (or S Corps). Both entities are identical in most ways and the variations occur largely in taxation; S Corps are pass-through tax entities — like LLCs — while C Corps pay a separate corporate tax. All corporations are C Corps unless Form 2553 was filed with the IRS to specifically elect S Corp taxation.
The other difference between C Corporations and S Corporations is ownership. While both natural persons and business entities may own shares in a C Corp, only natural persons may own S Corp stock. This means that an LLC may own a C Corp, but may not own an S Corp since an LLC is not a natural person. Your LLC may be the sole shareholder of the C Corp or may own the company with other natural persons, LLCs, or other business entities.
Though C Corporations are not pass-through tax entities, your LLC will still be if that is your preference. When the corporation pays dividends to the LLC, it will pay taxes at the corporate level. The LLC’s dividends will then pass through to the LLC’s members who will claim them on their personal income tax returns.
If your LLC wishes to own a corporation because your business is acquiring another business, consider acquiring only the corporations assets rather than the corporation in whole. The decision involves a number of factors, and so you should speak with an attorney who can help you weigh your options.
You should also take care to make sure your LLC does not become classified as a personal holding company or personal service corporation. This is another concern a lawyer can help you with.