LLC vs. Inc: The Main Differences

When starting a business, many people want to know what the better option is: an LLC or an Inc. There are advantages and disadvantages to both, and choosing the one for your company really depends on the needs of your business. Let SettingUpLLC.com help you understand how each one works and which one can benefit your business.

LLC vs. Inc: What's the Difference?

On the most fundamental level, an LLC and an Inc are actually very similar. They are both legally considered separate entities from the people who own and run them, meaning the individuals who own the company cannot personally be held liable for any debts or lawsuits that are brought against the company. This protection is why many people, whether running a one-man shop or a company with hundreds of employees, choose to incorporate or become LLCs.

So how are they different? Each one must follow different regulations and are subject to different kinds of tax rules, and these are often the deciding factors when choosing between an LLC and incorporating.

The Advantages of LLCs

Find out why a limited liability company may be the right option for your business:

Flexibility: They simply have a lot more flexibility and less rules and regulations to follow. Unlike corporations, LLCs are not required to hold any annual meetings, and there are usually less fees and paperwork associated with running an LLC.
Pass-Through Taxation: Double taxation occurs in corporations when net profits are taxed before owners receive their income. Owners get taxed double when their income is also taxed. Pass-through taxation means company profits only get taxed after they pass to each owner as income.
Deducting Losses: Owners of LLCs can deduct losses on their individual tax returns, while certain types of corporations do not allow owners to do so.
All paperwork is completed for you and sent directly to your door.
Number of Owners: There is no limit to the number of people who can own an LLC.

When an Inc Works for You

While LLCs have many advantages, there are times when incorporating may work better for your company:

Employee Benefits: If you own a corporation and provide your employees with benefits, such as medical insurance, life insurance, and parking, they won't have to pay taxes on those benefits. Employees of LLCs are required to pay those taxes.
Self-Employment Taxes: Only the salaries (and not the profits) of a corporation are subject to self-employment taxes. With LLCs, both salaries and profits are hit by self-employment taxes.
More Tax Benefits: Corporations have the flexibility to delay the distribution of profits to their shareholders, meaning those shareholders won't be immediately subject to their individual tax brackets for those profits. For LLCs, pass-through taxation requires that profits pass immediately to members.

LLCs provide an enormous amount of flexibility, while corporations have their own benefits. You always want to carefully consider the pros and cons of each before deciding which one is right for your business. If you decide an LLC is right for you, SettingUpLLC.com can get your business started today.