LLC vs INC: What’s the difference?
Some business names mainly end with abbreviations such as Inc and LLC. Nevertheless, what do those abbreviations mean? Between LLC and Inc, which is better? These two, LLC and Inc may seem confusing, but they are abbreviations for various kinds of business entities that stand for Limited Liability Company and Incorporated, respectively. Both corporations and LLCs are formed by filling forms with the state, and both protect their owners from liability for business obligations. However, LLC and Inc are very different in the way they are owned, taxed, and managed, and they have diverse reporting and recordkeeping requirements.
What to look for in an Incorporation
Incorporation refers to the legal process of forming a company or corporate entity. In this type of business enterprise, one moves from internship or proprietorship to an organization that is legally recognized by State Corporation. In addition, incorporation is categorized into S corporation and C Corporation.
How incorporations work
There are many advantages associated with incorporation for both business and owners. The assets for the owners are protected against companies’ liabilities. Further, incorporation permits easy transfer of ownership to a different party. Also, in Incorporation, one can raise capital through the sale of stock. Finally, incorporation enterprise achieves tax rate which is lower than a personal income.
What to look for in Limited Liability Company
Limited Liability Company refers to corporate structure in the United States whereby the owners cannot be held liable for the liabilities or debts of the company. While selecting this form of business enterprise, you should comprehend that it contains partnership, corporation and sole proprietorship characteristics.
How Limited liability Companies work:
In Limited liability, there is less paperwork required to form it, and it is one of the easiest ways to start a business. This form of business enterprise is allowed under statutes. The regulations for the Limited Liability Company vary from state to state. Further, there is no restriction in ownership hence everyone can be a member. In addition and articles of organization are filed with the state and become complete after the articles of organization are complete. Some of the issues dealt with in Limited Liability Company entail Profit and loss allocation, structure, provision for the death of a member, and many other considerations.
Some reasons why you should choose limited liability
Limited Liability Company protects the owners of the business from being held liable for business activities. The main reason why people opt for Limited Liability is to limit the principal`s personal liability. Also, the management of LLC is flexible, unlike the right structure of a corporation, and finally, income and loss go through your own tax return instead of the business. LLC stands for Limited Liability Company while Inc refers to incorporation, and they are two different forms of business entities. The methodology used in taxing these enterprises, ownership method and management differ.
- A) Ownership
Incorporations, shareholders who are the owners are issued with shares of stock. These shares are easily transferred from one person to another hence it is a good form of business for investors. On the other hand, owners of Limited Liability Company are referred to as members, and members own certain percentage of the company also referred to as membership interest.
- B) Taxation
Corporations are taxed in various ways through either default, whereby they are taxed as corporations or by paying federal income tax on their corporate profits. Further, shareholders are taxed on the dividends they receive. On the other hand, there is a more flexible structure in Limited Liability Company whereby limited liability company single member is taxed like sole proprietorship and multi-member taxed like a partnership. This means that tax is paid in limited liability Company as part of personal tax return.
- C) Management
Corporations have existed for a long time, and their management structure is fairly standard and rigid. The board of directors is in charge of setting policies and oversees the business, and the operations of the management are managed by the officers. Limited liability companies are recent and are more flexible compared to corporations. LLC is managed by members are the owners are more involved in carrying the business of the company.
- D) Liability Protection
In both business enterprises, the owners are protected from being liable for the debt of the business.
Generally, both corporations and LLCs are business enterprises separate from their owners. They have common features, but they differ in the way they are operated, owned, managed and taxed. Therefore, when forming a new business, one should consider carefully the entity which seems best for you.
Find out how which corporate structure is best for your company
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