What is the difference between LLC and Inc? LLC and Inc. are both business entities formed by the state. An LLC is a limited liability company, and an Inc. is a corporation. They both file organizational papers with the state, and their owners receive liability protection. These entities also differ in key areas:
A corporation is a business transformed into its own entity, separate from its owner. Sole proprietorships and partnerships are extensions of their owners, whereas structures like a corporation can conduct transactions on its own. Corporations, like LLCs, are business entities that exist outside their owners. Corporate owners are called shareholders.
Corporate owners are called shareholders. There are two types of corporations: A C corporation (C corp) and an S corporation (S corp). A C corporation is also known as a standard corporation. C corporations are subject to double taxation. A corporation can avoid double taxation through an S status election. However, there are other restrictions when a corporation elects an S status.
A limited liability company (LLC) gives its members flexibility and protection. An LLC provides its owners, called members, limited liability protection while eliminating the double taxation burdens of a corporation. The LLC entity passes through the business structure to the members.
An LLC has four significant benefits:
The LLC’s limited liability feature protects members’ assets should the business face a lawsuit. If the LLC is sued, the members’ assets are protected from seizure to pay off the LLC’s debt. Sole proprietorships and partnerships do not protect their owners from personal liability in a suit.
Furthermore, LLCs benefit from pass-through taxation. Profit and losses pass through the LLC to its members. The members will include the gains and losses on their tax returns.
Lastly, an LLC management structure is flexible. LLC members can decide whether they will manage the business or appointment a manager. If the LLC is member-managed, then all the members take part in running the day-to-day business operation. With a manager-managed LLC, not all members participate in managing the business operations.
LLCs and corporations have several things in common:
There are differences between an LLC and a corporation regarding formation, ownership, and taxation:
LLCs and corporations are structures that exist for distinct reasons. Knowing your needs (for instance, whether you need outside investors or a flexible management structure) will help you form the structure that fits your business requirements.
If you need help with selecting between an LLC or an Inc. business structure, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.
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