LLC Vs. Inc.

By William Pirraglia

People often confuse LLCs (limited liability companies) with corporations (Inc.). They are, at first glance, similar, yet very legally different. The two business structures do share one very important feature -- limited liability for owners. However, many other components are different. While one choice is not "better" than the other, one option may be more appropriate than the other in certain circumstances. An Inc is seldom an inappropriate choice, but can be more expensive or tedious to maintain than an LLC, from a paperwork perspective.

People often confuse LLCs (limited liability companies) with corporations (Inc.). They are, at first glance, similar, yet very legally different. The two business structures do share one very important feature -- limited liability for owners. However, many other components are different. While one choice is not "better" than the other, one option may be more appropriate than the other in certain circumstances. An Inc is seldom an inappropriate choice, but can be more expensive or tedious to maintain than an LLC, from a paperwork perspective.

LLC and Inc. Similarities

The most significant similarity shared by both LLCs and corporations is the personal asset protection offered. Personal asset -- homes, autos and bank accounts -- protection from company creditor attack is the most important similarity between LLCs and corporations. LLCs may also choose to be taxed as corporations, instead of distributing their profits directly to owners to be included in their personal income for tax purposes.

Ready to start your LLC? Start an LLC Online Now

LLC and Inc. Ownership Differences

Ownership differences are wider than the similarities. LLCs are restricted to 100 stockholders or less, while corporations are limited only by the number of shares they authorize and issue. Should an Inc. go "public," offering their shares for sale on global stock markets, anyone is eligible to purchase, hold or sell these stocks. All stockholders in an LLC must be U.S. citizens or legal resident aliens. If you plan to attract many stockholders, an Inc. may be the best option. Should you intend to keep your ownership group small, an LLC will work for you.

Tax Considerations

Tax considerations are often critical of your choice of creating an LLC or an Inc. Tax rates, which change depending on the whim of Congress, are usually higher for an Inc. Owners of an Inc have two taxation options: They can be taxed as a standard (C) corporation or they can select Sub-chapter S treatment (S corp), which make their company a "pass through" entity, with all profits allocated to stockholders to be included in their personal income. LLCs have have three choices for taxation: They can choose to be taxed as a partnership, sole propietorship or a corporation. All LLCs are "pass through" organizations, so owners will receive profits as personal income, unless they specifically choose corporate taxation.

How to Choose an LLC or Inc,

LLCs are structured for single owners, partnerships and smaller organizations. Corporations lend themselves to all companies, large and small. If you have a smaller company, want to avoid the many paperwork requirements of an Inc., and still enjoy the limited liability of corporate stockholders, an LLC is the best option. Should you believe your business will grow substantially, envision more than 100 stockholders in the future or hope to take your company "public" -- listed on a stock exchange with shares available for purchase worldwide -- an Inc. is your best choice.

Ready to start your LLC? Start an LLC Online Now
The Legal Definition of LLC

References

Resources

Related articles

The Tax Advantages of LLCs Over S-Corporations

Limited liability companies and S corporations are quite similar from a tax perspective. They are, however, quite different from a legal structure comparison. The most prominent tax advantage of an LLC is its ability to "choose" how it is taxed. A corporation has only two options: to be taxed as a regular C corporation or to be taxed as an S corp, pursuant to Sub-chapter S of the Internal Revenue Service code.

Outline of an LLC Vs. a Chapter S

Both LLCs and corporations are created under state law. To become an S corporation, however, a corporation must qualify under the Internal Revenue Code and file Form 8832 to claim S corporation status with the IRS. Significant differences exist in the taxation and operational flexibility of these two business vehicles.

What Is the Difference Between an LLC & an S Corporation?

Both a limited liability company, or LLC, and an S Corporation, or S-Corp, offer an owner limited liability protection. An S-Corp is a corporation that qualifies under subchapter S of the U.S. Tax Code to be taxed as a partnership rather than as a corporation. An LLC can elect similar tax status, but without the regulations and restrictions inherent in the corporate form.

LLCs, Corporations, Patents, Attorney Help

Related articles

Can I Convert an LLC to an S-Corp?

Converting an LLC to an S corp is possible, but should be done carefully. The advantages of each business structure are ...

Can an LLC Own a C Corporation?

An LLC, or limited liability company, can own stock in a C corporation regardless of whether it is one share or 100 ...

Can an S-Corp Own an LLC?

An S corp may own up to 100 percent of an LLC, or limited liability company. While all but single-member LLCs cannot be ...

The Definition of an LLC Member

An LLC member is an owner of the company. All owners of LLCs are classified as members. Just as the owners of a ...

Browse by category