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.

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.

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.

Ready to start your LLC? Start an LLC Online Now

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
Can an S-Corp Own an LLC?
 

References

Resources

Related articles

Differences Between an LLC & an S Corp

Limited liability companies, or LLCs, and Subchapter -- or S -- corporations are legal formation options to consider when starting up your small or family-owned business. An LLC can take the taxation form of a partnership or a corporation, so an LLC and an S corp are not mutually exclusive. However, most LLCs are organized as partnerships.

Tax Advantage of LLC Over S Corp

When researching the best legal structure for your small business, you may consider a limited liability company, or LLC, and an S corporation. Both LLCs and S corporations protect owners from personal liability for debts, and pass through their income to owners who then pay personal income taxes on those earnings. These entities have many similarities, and a few important differences, when it comes to taxation.

Non-Profit C4 Vs. C3

Title 26, Section 501(c) of the Internal Revenue Code recognizes several different types of nonprofit organizations. Nonprofit corporations, trusts and foundations have several advantages over for-profit organizations, including an exemption from paying federal income taxes. Two classes of 501(c) nonprofits, known as “C3” and “C4” organizations, are similar in some respects. However, they have different eligibility requirements, and the IRS places different restrictions on their activities and donations. When deciding whether to structure your nonprofit as a C3 or a C4, these distinctions should be considered.

LLCs, Corporations, Patents, Attorney Help LLCs

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 ...

S Corp vs. LLC

Among the many business organization choices facing the start-up entrepreneur stand the limited liability company (LLC) ...

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 ...

Difference Between LLP, LLC and PC

Limited liability partnerships, limited liability companies and professional corporations are hybrid forms of business ...

Browse by category
Ready to Begin? GET STARTED