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Difference Between LLC and INC

llc_bookLLC vs INC

When putting up a business, legalities are definitely involved and as a business owner, having a great idea is not enough, a decision of how to structure a business must also be well thought-out.

Two of the most important things to consider are legal protection and how the business should be taxed. These are the reasons why LLC (Limited Liability Company) seemed to be the new wave these days. Yet, INC, which is short for “incorporation” or “incorporated”, has been very long established and when it comes to stability, no one can deny the corporation’s reputed steadiness.

INCs and LLCs provide owners with liability protection. Personal assets are therefore not at risk unlike in partnerships and sole proprietorships where owners may be forced to use their personal assets to settle debt.

When you envision your business to go public in the long run, then becoming an LLC is not a good choice. An LLC cannot go public as a particular company needs to switch to become a corporation before it can happen. Thus, INC should be the better decision if your business goals involve going public. Since INCs can go public, venture capitalists are more inclined to work with corporations rather than LLCs.

Having said those, being an INC is best for large business entities. A typical registration fee is due which could go up to $1,000 which depends entirely on the state. LLC is much cheaper and it only commonly requires an agreement of how the business will be operated among its members, which is well-suited for small businesses with just a few members. Paperwork is enormously less in LLCs as compared to the tons of INCs.

However, for people who want to start a small business, LLC appeals greatly because it is very easy and cheap to set-up. It is also flexible and more lenient with fewer rules regarding membership. With INC, a business owner is subject to complex and arduous rules, regulations, and disclosures.

LLCs are not taxed as an entity therefore no double taxation occurs. Taxing LLCs is similar to partnerships and rightfully so, they are classified as such. Taxes of LLC members are prorated. INCs, however, suffer from double-taxation because the company is considered as a tax-paying entity.

Summary:

1.    LLC is not advisable if you want your business to go public while and INC entity is great when you intend to go public.
2.    INC has long been established as a business entity while LLC is relatively new.
3.    LLC is simple to set-up while INC is more complex with its directives.
4.    An INC suffers from double taxation while an LLC is not taxed as an entity, so no double-taxation occurs.
5.    LLC is suitable for small businesses while INC is for large business entities.


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