Difference Between LLC and INC

Whether you’re starting a new business or thinking about an existing one, the most important decision you’ll make is, “which legal structure is best?” Do you plan to go for an LLC or stick with a corporation? Well, the choice can be a bit tricky. You also have to consider several factors, such as the business type, tax consequences, and other considerations.

This article will delve into the key differences between LLC and Inc. so you can make an informed decision on which structure is best for you.

LLC

A limited liability company, or LLC, is a merger of the partnership and a corporation, except it offers the best of both worlds. It combines the limited liability protection of a corporation with the flexibility and simplicity of a partnership. It offers full limited-liability protection to all the owners, yet has a pass-through tax status.

In addition, an LLC separates the personal assets of its owners (members) from the business assets. So, if the company faces financial difficulties or legal issues, the personal assets of the owners are generally protected.

LLCs offer flexibility in terms of management and taxation. Members can choose to be taxed as a partnership, S corporation, or even a sole proprietorship.

Inc.

The term “Inc” is not a business structure itself; rather, it’s an abbreviation for incorporated. When you see “Inc” after a company’s name, it signifies that it is a corporation or an incorporated business. A corporation is a separate business entity with its own attributes and qualities, such as perpetual existence and the ability to do things in its own name.

A corporation is considered to be a domestic corporation of the state where it is incorporated. Let’s say you incorporate your business in Oregon. Then, Oregon becomes the state of incorporation, and you become a domestic corporation. If your corporation does business in other states, it becomes a foreign corporation in those states.

The corporation’s profits are taxed separately from the owners’ personal income, which is called “double taxation.”

Difference between LLC and INC

Ownership

An LLC is owned by its members, who can be individuals, corporations, or other LLCs. Members have more flexibility in structuring ownership and management. LLCs are a hybrid between a partnership and a corporation.

A corporation is owned by shareholders who hold shares of stock in the corporation. Shareholders elect the board of directors to make major decisions.

Taxation

An LLC offers full limited-liability protection to all the owners (like the corporation), yet has a pass-through tax status (like the partnership). Profits and losses pass through to the individual members, who report them on their personal tax returns.

Corporations, on the other hand, are subject to double taxation, meaning the profits are taxed separately from the owners’ personal income. The corporation itself is taxed on its profits, and then shareholders are taxed on dividends received.

Limited Liability Protection

LLCs offer full limited-liability protection to all the owners, meaning their personal assets are protected from business debts and liabilities. In addition, they have an additional layer of liability protection that protects the business from any personal lawsuits that may befall them.

In a corporation, the shareholders and the corporation are separate entities. Shareholders’ liability is generally limited to the amount invested in the company; their personal assets are protected.

Legal Formalities

LLCs generally have fewer formalities and less stringent record-keeping requirements. Like corporations, LLCs are governed by the state laws where they are formed.

Corporations are subject to more formalities, including regular board meetings, annual shareholder meetings, and detailed record-keeping. Corporations also have stricter compliance requirements.

LLC vs. Inc: Comparison Chart

Summary

If you plan to scale your business to a large organization, then a corporation might be the way to go. However, if you want something quick and easy with less paperwork, go for an LLC (Limited Liability Company). With an LLC, you also get more flexibility when it comes to taxes. LLCs also have less rigid management and recordkeeping requirements, unlike corporations.

FAQs

What is the difference between an LLC and an INC in Canada?

One of the main distinctions is that an LLC can have one or more owners, while a corporation is owned by shareholders who hold stock in the corporation.

What is LLC equivalent in Canada?

In Canada, the closest thing to an LLC is a corporation (Inc.).

What is the difference between a limited company and an Inc.?

Limited (Ltd) is generally a form of incorporation commonly used in the United Kingdom, whereas “Inc” typically indicates a corporation in the United States and Canada.

Is Google an LLC or an Inc.?

Google is a corporation. It is a subsidiary of Alphabet, Inc.

Is Apple a corporation or an LLC?

Apple is a corporation. It’s one of the largest technology companies in the world.

Why did Google go from an Inc. to an LLC?

As Google diversified, the LLC structure offered more flexibility and autonomy for its different business units within the Alphabet umbrella.

The LLC status provided clearer financial reporting for each subsidiary, giving investors better insights into performance.

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