LLC vs Inc (Corporation)

Difference Between LLC and Inc (Corporation)

LLC is owned by its members requiring less paperwork and legal formalities which is not perpetual and is taxed on single taxation basis whereas Inc is owned by its shareholders requiring much more legal formalities as well as paperwork because it is a complete separate legal entity with perpetuity as its core assumption and double taxation is applied as the size of these corporations are much larger.

So, you have decided to go from sole-proprietorship to something more recognized. Since you’ve been bombarded with so much information, you’re not able to decide what’s the right thing to do? To go for LLC (Limited Liability Company) or to stick with a corporation.

Well, in this article, we will break down the difference between LLC vs Inc so that you can easily decide what you should do. The first thing you need to think about is your vision. Do you want to have a full-fledged public company that will serve thousands and thousands of customers? Do you want to issue shares to the public? Do you want to have more owners on board?

LLC-vs-Inc

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Depending on what you want, you should decide.

Let’s say you want more owners on board, then you should go for LLC. However, if your aim is to issue stocks in the near future, LLC won’t fit the bill. You should choose a corporation. Ultimately the objective of forming a new entity will determine whether you should go for an LLC or Inc. If the objective doesn’t matter and you want a quick solution, the best bet would be an LLC. Why? Because forming an LLC will require less paperwork. That means you could save more time. Plus, you just need to pay anything between $100 to $800 to file the articles of organizations with the State Secretary.

However, LLC has a major demerit. In LLC, the members need to pay self-employment taxesSelf-employment TaxesSelf-employment tax is the tax towards social security and Medicare, paid by a self-employed person who has net earnings of $400 or more for the concerned tax period towards the federal government reported through form 1040 schedule SE.read more on their salary/profits. On the other hand, Inc needs a prodigious amount of paperwork. And moreover, once you form an Inc, you need to go through a huge amount of record-keeping as well.

LLC vs Inc (Corporation) Infographics

Let’s see the top differences between LLC vs Inc (Corporation).

LLC vs Inc

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Key Differences

LLC vs Inc Comparative Table

Basis for ComparisonLLCInc
Perfect forLLC is perfect for small & medium-sized businesses that have fewer shareholders.Inc is perfect for large organizations (or organizations that plan to go big)
OwnershipMembers own all the ownership of an LLC.Shareholders own the corporation altogether.
TaxationSingle taxation is applied to LLC. Whatever profits/losses are made by the LLC are directly passed on to the members.Double taxation is applied in the case of a corporation. Corporate taxation is applied to corporate income and then personalIncome And Then PersonalPersonal income refers to the total earnings of the individuals and households of a nation through multiple sources such as salary, wages, business profits, bonus, investment returns, dividends, rental receipts, employer contribution in provident or pension funds, etc.read more taxation is applied to personal income (dividends paid to shareholders).
Separate entityLLC and members are considered as separate entities, but profits/salaries paid to members are taxable.In the case of a corporation, the shareholders and the corporation are completely separate entities.
MeetingsIn the case of LLC, there’s no legal requirement for meetings.In the case of a corporation, regular meetings are being conducted.
PaperworkTo form an LLC, you need less paperwork.To form a corporation, you need a prodigious amount of paperwork.
Issuing sharesAn LLC can’t issue shares.A corporation can issue sharesIssue SharesShares Issued refers to the number of shares distributed by a company to its shareholders, who range from the general public and insiders to institutional investors. They are recorded as owner's equity on the Company's balance sheet.read more in the near future.
PerpetuityDeath or withdrawal of a member or two affects an LLC.Death or withdrawal of a shareholder or two doesn’t affect a corporation.

Final Thoughts

If you want to scale your business to a giant organization, a corporation would be the right choice. But if you want to form a quick, limited liability organization without much paperwork, then an LLC would be the perfect bet. You would also earn better flexibility in taxation in the case of an LLC.

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This has been a guide to LLC vs Inc (Corporation). Here we discuss the top differences between them with infographics and comparative table. You may also have a look at the following articles for gaining further knowledge –

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