An LLC is owned by its members requiring less paperwork and legal formalities. It is not perpetual and is taxed on a single taxation basis. In contrast, Inc is owned by its shareholders requiring much more legal formalities and paperwork because it is a completely separate legal entity with perpetuity as its core assumption.
In general, it costs more to incorporate than it does to form an LLC. Determining which entity type best suits your business’ specific needs is never a simple process. It’s normally best to consult with a tax expert, financial advisor, or attorney.
Formation and Taxation
The creation of a limited liability company (LLC) is a much simpler process than creating a corporation and usually requires less paperwork. Once an LLC is formed, it is good practice to set out the roles and responsibilities of the members by creating an operating agreement to define these roles. The Internal Revenue Service (IRS) does not view an LLC as a separate vehicle for tax purposes, which allows for greater flexibility. Two types of corporations can be formed: an S corporation and a C corporation.
The general consensus is that start-ups seeking venture capital should incorporate as C-Corporations. Interestingly, an LLC is a highly customizable entity through which a company could set up structures similar to a C-Corp. Because distributions are taxed at both the corporate and the shareholder level, C corporations and their shareholders often end up paying more in taxes than S corporations or LLCs.
FAQs About Business Structures
- Are LLCs incorporated?
- Is incorporated the same as LLC?
- LLC vs Inc: What’s the difference between LLC and incorporated?
An LLC is a hybrid of a corporation and a partnership. LLCs are noted for their adaptability, and they need a bank account distinct from the owners’ personal accounts. Additional members may be added to an LLC if necessary, and other classes of ownership are also accessible.
LLC vs. Inc: Tax Implications
LLCs have pass-through taxation, profits and losses passed to owners. Corporations taxed separately, on profits and shareholder distributions.
For profitable LLCs, corporate shareholders don’t pay tax on corporate income. The 21% corporate rate may be lower than personal rates. LLCs avoid double taxation. If you have questions email me.
Which is Better for Small Business?
Starting a limited liability company (LLC) is the best business structure for most small businesses because they are inexpensive, easy to form, and simple to maintain. An LLC is the right choice for business owners who are looking to:
- Protect their personal assets
- Have tax choices that benefit their bottom line
Consult experts to determine which entity suits your business. Attorneys can file paperwork to start your business as an LLC or corporation.