Many small businesses are organized as a limited liability company (LLC) or corporation (Inc.). However, corporations have more rigid management structures with boards of directors and officers. LLCs allow for more flexibility in management and taxation.
Understanding LLCs
LLC stands for "limited liability company." It refers to a type of business structure that combines partnership and corporate characteristics. LLCs allow pass-through taxation, so business income passes to owners’ personal tax returns.
Understanding Corporations
Inc. and corp. indicate a business is a corporation. Corporations go through incorporation to legally separate owners from the business. They have unique tax structures and stricter management requirements compared to LLCs.
Making the Choice
Selecting the right structure is an important first step in starting a business. It forms the foundation to function and expand over time. Choosing between LLC and Inc depends on business goals and needs regarding liability protection, management flexibility, and taxes. Understanding the differences will help set the stage for protection, advantages, and success.