Inc. vs. Corp vs. LLC: Everything You Need to Know
If you need to choose between an Inc. vs. Corp. vs. LLC, you’ll want to fully know each option before deciding which type of business structure is best.3 min read
2. LLC Business Structure
If you need to choose between an Inc. vs. Corp. vs. LLC, you’ll want to have a full understanding of each option before determining which type of business structure is best for you and your business. There are different business designators for each type of business structure, including the following:
- A limited liability company uses terms like L.L.C., LLC, Limited Liability Co., or Ltd. Liability Co.
- An incorporated business using the designator Inc.
- Corporations use the abbreviation Corp.
All businesses, regardless of what kind, are formed at the state level. State laws vary, so it is important to know what is required of you when forming your business in your home state. When considering what type of business to form, you’ll want to think about your short-term and long-term goals and objectives. Choosing the right structure helps in your business success and expansion.
Although corporations and LLCs offer limited liability protection for its owners and members, there are still many differences between these two business structures. Furthermore, there are differences between an LLC and Inc.
When choosing which one to form, you should also think about the following:
- How many owners you will have
- How you want to be taxed (LLCs have several choices on how to be taxed depending on the number of members)
- If you plan on having outside investors or engaging in an Initial Public Offering
Not only will you need to choose your business structure, but you will also have to choose what state to form your business in. Particularly, certain states are more favorable than others; for example, the State of Delaware is a very popular state for incorporation due to the favorable corporate laws and assistance from the courts in resolving business disputes.
Corporate Business Structure
Corporations have been around a lot longer than LLCs. The corporate business structure is more formal, and has a lot more requirements than that of an LLC. Corporations have a board of directors who set the policies and procedures of the business. However, the daily operations of overseen by the officers, who are hired by the board of directors. The shareholders simply own the stock in the company. For smaller corporations, one person may have several roles, i.e. someone might be an owner (shareholder), officer, and a director. The roles and responsibilities of all of those involved are specified in the operating agreement.
Corporations issue stock to owners, who are also referred to as shareholders. Shares can easily be transferred from one owner to another, which is why the corporate business structure could be the right choice for you. Furthermore, if you plan on having outside investors of having an Initial Public Offering (IPO), then the corporate structure would be the right choice for your company.
LLC Business Structure
LLCs are a newer type of business structure, and as such, are much more flexible in terms of management style and the overall decision-making process of the business. Therefore, an LLC can be managed by its members or by an outside manager. Moreover, a multi-member LLC can choose one or two members to act as managers. If some of the members aren’t active managers in the LLC, then they will not have oversight of the daily operations of the LLC, and will usually only having voting power over significant business decisions.
Owners of an LLC are referred to as members. Instead of having shares, such members own a percentage of the LLC, i.e. membership interest. Membership rights are harder to transfer than shares; however, the LLC operating agreement will identify the process whereby members transfer their interest.
Some states provide that, if a member wants to transfer his or interest and leave the LLC, then the LLC will automatically be dissolved. Therefore, it is important that the operating agreement identify certain provisions so that the LLC can survive any transfer of interest.
LLCs and C Corporations have no restriction on the number of owners a business can have. S corporations, however, provide that there can be no more than 100 owners. Furthermore, these owners cannot be non-resident aliens, another C Corp, LLCs, other S Corps, or non-qualified trusts.
If you need help choosing between an incorporated business, corporation, or LLC, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.