LLC vs Inc - Which is Better For Your Business? (Updated In 2017)

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Whether you are starting a new business or restructuring an older one, you have a big decision to make.

What type of business structure do you want to use?

Namely, are you going with an LLC or corporation?

The two have so many similarities, it can be hard to figure out which one is right for you.

Fortunately, having a better understanding of the two can really help.

Starting with the difference between LLC vs Inc.

While I hope this article gives you some great information when it comes to considering an Inc vs LLC, I’m also here to answer your questions.

Email me at sam@mollaeilaw.com and I’ll get back to you soon.

Let's get started...

 

Incorporated vs LLC

Incorporated vs LLC is a decision that every business owner has to make. There are compelling advantages and disadvantages of both types.

Incorporated is just a way to say that your business is a corporation.

This article looks at all the similarities and differences between forming an LLC or incorporating your business.

Incorporating or forming an LLC for your business is a big decision and one that you should make with as much knowledge as possible.

I’ve tried to cover the information you’ll need to help make a decision, but please reach out to me at sam@mollaeilaw.com if you have any further questions.

 

What is Better LLC or S Corp?

When it comes to which is better, an LLC or S Corp, the answer depends on your business.

There are various advantages and disadvantages to both. I cover those later in the article.

However, it’s not a one-size fits all solution.

In some cases, an LLC is definitely better – such as for internet businesses or businesses that want the ease of an LLC with limited liability protection.

In other cases, an S Corp is the better choice because it provides the same limited liability as an LLC but also offers tax advantages.

In most cases, if you can qualify for an S Corp status, you should go ahead and start with that from the beginning to enjoy the perks of a corporation from the start.

I can help make this important decision is you email me at sam@mollaeilaw.com

 

What is Inc in a Company?

Inc in a company name stands for incorporated.

This abbreviation isn’t just part of the business name. It is a separate legal entity that stands for the word incorporated. It tells you there is a shareholder or shareholders who have a stake in the business and are responsible for running it.

Being incorporated, also provides a business owner from liability protection.

Someone may try to sue an incorporated business for everything they are – or are not – worth. You’re your assets as a business owner are generally protected.

The only rare exception to this is if the business and/or business owner did something to commit fraud. Then, the liability protection provided by being incorporated may not shield you from the lawsuit.

 

Why Should You Incorporate?

Incorporating your business is a smart decision because it provides protection, legitimacy, and other perks.

The first reason why you should incorporate is a reason a lot of people don’t talk about. Perpetual existence.

Basically, this is the best option for allowing your business to live beyond you. After all, that’s what every great businessman wants right?

Do you really want your business to die when you do?

That’s what happens if you opt for Sole proprietorship or partnership. For some, this isn’t a desired outcome and in this case, they may want to form an LLC and establish the limitations in the foundational documents.

The second reason is kind of a drag to talk about, but we still have to go there – taxes.

Being incorporated gives you a lot of flexibility when it comes to taxes that you won’t get with any of the other business structure options.

The key is making sure you are an S corporation. This will give you the most flexibility on your taxes.

The next reason is about taxes as well, but I promise it’s a good one. Expenses. Who doesn’t like deductible business expenses?

All of those typical business expenses you have to have in order to keep your business afloat can be written off.

This includes everything from salaries to equipment to employee benefits. It just doesn’t get much better than writing off something you had to spend money on.

Let’s talk about what is the biggest reason why you get your business incorporated – protection.

As a business owner, you should want to do anything you can to protect yourself. Incorporation will help you with just that.

Even though you are a business owner, you are still an individual. You have individual assets such as your home and your car which have nothing to do with your business.

If something bad happens to your business, you don’t want it to leak over into your personal assets or you could end up losing your car and your home because of business related debt.

While no one wants to think about their business failing, you have to. And, you need to make sure it won’t completely destroy you. Incorporate, then you don’t have to worry about it.

The fifth and final reason is credibility. There’s just something about a business name that has “Inc.” at the end of it that makes people trust it more.

Vendors, potential partners, and customers are all going to be more comfortable working with you because of those three little letters at the end of your name. As a new business – or newly restructured business – you need every little advantage you can get. Incorporation is the way to make that happen.

If you are unsure about incorporating your business, email me at sam@mollaeilaw.com with any questions you may have.

 

What Are the Advantages of an LLC?

The advantages of an LLC are limited liability, ease of formation and compliance, and legitimacy.

A lot of new and restructured businesses opt for limited liability (LLC). After all, this structure offers a number of advantages you just don’t get with other options.

This is because some consider LLC to be the perfect blend of partnership, corporation, and sole proprietorship. While state laws may cause LLCs to vary from one state to the next, the benefits of opting for LLC are basically the same across the board.

 

What Are the Disadvantages of an LLC?

The disadvantages of an LLC include limitations and taxes.

You are protected from liability and you have a lot of tax benefits. With all good things, however, there are going to be some bad. Basically, an LLC structure could be good for your business, unless it’s not.

How do you know?

Well, you have to be aware of the downsides as well.

For starters, you need to make sure your business can legally be an LLC.

Depending on what type of business you have and where you live, it might not even be an option – from a legal standpoint.

The limited liability protection isn’t bullet proof.

It is intended to protect you from someone trying to liquidate your personal assets in order to covert business related debts or lawsuits. While you have this protection in most cases, there are some exceptions.

If your company commits fraud, for example, you are going to have to repay the debt and lawsuits. Your liability protection isn’t going to protect you in this case.

LLC structure isn’t going to get you out of fees and paperwork. In fact, you are going to have to pay more to set up an LLC than you would if you opted for a partnership or sole proprietorship.

But it’s important to keep this in perspective because an LLC is cheaper than forming a corporation.

Keep in mind that you may not even be able to operate as an LLC depending on what type of business you are.

Finally, there’s the dreaded self-employment tax.

As an LLC, you are subject to this type of tax. This means more complicated tax paperwork and fees you may not want to pay.

 

What Are the Advantages of a Corporation?

The advantages of a corporation include protection, legitimacy, existence, and taxes.

Protection is the number one reason to opt for a corporation.

Sure, no one wants to think about what if someone sues my business one day or what if my business has more debt than profit. But, you have to think about both the good and the bad.

More importantly, you really just need to think about all the what ifs. What if someone sues your business? After all, it could happen.

If you don’t have protection for your personal assets, the lawsuit could allow the other party to come after your personal assets in order to get their compensation. If your business gets incorporated, this isn’t something you have to worry about.

Incorporating your business is also going to make you look good to prospective individuals who may do business with you.

Whether you are interacting with customers, vendors, business parents, or potential investors, they are going to feel a little more comfortable working with you because you took the time to get your business incorporated.

After all, would you rather invest in Purple Hats or Purple Hats Inc.? There’s just something about “Inc.” at the end of the name that makes you look more authoritative as a business.

Becoming incorporated will also allow your business to become timeless. Essentially, this means your business isn’t going to die when you do.

Do you really want to build a business that only lives as long as you do? Or, do you want to build one of those businesses that everyone can’t stop talking about for years and years to come?

If it is the later, you need to incorporate.

Tax wise, you are also going to find corporations to be in your favor.

You get a lot of flexibility and more or less loopholes as long as you are a subchapter s corporation.

Furthermore, you get to claim most of your business expenses as tax deductions.

Doesn’t get much better than that.

 

What Are the Disadvantages of a Corporation?

The main disadvantages of a corporation are double taxation and the paperwork required upon start up and throughout the year.

Corporations have to deal with the struggles of double income taxation. This is because they are taxed both as a business and as a shareholder.

As an LLC, you will get a “pass through.”

This makes it possible for each member of the LLC to only be taxed once. After all, who wants to get taxed more than once for the same income?

As a corporation, you’ll file more paperwork and pay more fees to start your business than if you formed an LLC.

Additionally, throughout the year, you have to hold meetings, keep corporate minutes, and make sure the business is staying compliant because the regulations on a corporation are more strict than on an LLC.

If you want to talk about how to deal with the disadvantages of a corporation for your business, email me at sam@mollaeilaw.com

 

Should I Incorporate or LLC My Business?

The decision on whether to incorporate or LLC your business depends on your situation.

Generally, an LLC is a great option for small businesses who need some protection but don’t want all the hassle of compliance and regulations that come with a corporation.

An S Corporation is also a good choices for small businesses because it offers a lot of the benefits of an LLC while offering a tax break. Not every business qualifies, though.

When it comes to deciding whether to incorporate or LLC your business, email me at sam@mollaeilaw.com and I can advise you based on your unique situation.

 

Conclusion

Sam Mollaei, Esq., Business Lawyer

Sam Mollaei, Esq., Business Lawyer

There are many differences with an LLC vs Inc that a business should consider before jumping in with a decision.

The question on whether you should incorporate or LLC isn’t something that can be answered completely in an article.

It requires a look at your personal situations and your visions for your business.

I’ve helped many individuals make the decision and then form the business structure that best fits them.

► Email me at sam@mollaeilaw.com and I’ll help you every step of the way.