LTD vs LLC vs Inc: Everything You Need to Know
Ltd vs LLC vs Inc refers to business entity descriptors for limited (Ltd), limited liability company (LLC), incorporated (Inc or Corp), each of which has advantages and disadvantages. 3 min read
2. What Is Ltd?
3. What Is LLC?
4. What Is Inc?
Ltd vs LLC vs Inc refers to business entity descriptors for limited (Ltd), limited liability company (LLC), incorporated (Inc or Corp), each of which has advantages and disadvantages. Understanding the differences between these structures will help you choose the perfect fit for your company.
Corporations can go by several names, depending on the state in which the entity is formed, including the following:
- Incorporated (Inc.)
- Company (Co.)
- Corporation (Corp.)
- Limited (Ltd.)
Limited or Ltd. is used to denote corporations in some states and limited partnerships in others. Ltd can also simply refer to the limited liability characteristic of any entity type.
Corporations offer liability protection to their shareholders, allow for a wide range of investors, and require a specific management structure with a board of directors and officers. S and c corps are not different types of corporations but different tax classifications.
Limited partnerships can come in the form of:
- Limited liability partnerships (LLPs)
- Limited partnerships (LPs)
- Limited liability limited partnerships (LLLPs)
- General partnerships (GPs)
Most of these variations on partnerships require at least one of the partners to absorb liability for the business, and these options are each well-suited for certain businesses.
LLCs are a sort of combination of the partnership and corporation structures. They benefit from the pass-through taxation of partnerships and the liability protection of corporations. LLCs can act as parent companies for groups of other entity types.
What Is Ltd?
"Ltd" is the abbreviated form of limited and when used in any entity name, refers to the limited liability offered with particular business structures. Any entity type that uses this descriptor protects its owners from personal liability in case the company is sued or defaults on any debts.
Because the abbreviation "Ltd" is actually a descriptive part of a business name, many different business structures could use this. A company formed as an S corp could use this descriptor at the end of the name.
When "Ltd "is used to describe a limited partnership (LP), it is noting that the partnership has at least one member that remains liable for the business while the others are protected. These are known as general and limited partners, and the LP needs at least one of each.
What Is LLC?
LLCs are recently recognized business entity structures that are governed by state laws. They became popular during the 2000s, but were first created in the 1970s. The regulations and requirements for LLCs differ from state to state.
Owners of LLCs are called members. These members claim the income of the business on their personal income tax returns as it passes through to them. The LLC is not taxed, so this avoids the double taxation that happens with corporations.
The members of an LLC can choose how it is taxed. They can choose either corporation, partnership, or disregarded entity status. If the LLC elects corporation status in the eyes of the Internal Revenue Service (IRS), it will be taxed at the business level and will incur double taxation. LLCs are classified as partnerships by default when they have more than one member.
LLC management is fairly flexible. You can either have a manager- or member-managed LLC. Members can have the profit distributions divided however they choose. Unlike other entity types, the profit percentages don't need to match the members' capital contributions. These details should be clearly outlined in the LLC's operating agreement.
What Is Inc?
The abbreviation "Inc" refers to a business being incorporated. If a business entity is incorporated, it has adopted the corporate business structure. Corporations are one of the oldest entity types and tend to be best suited for companies looking to expand.
Corporations can offer varying levels of interest to potential stockholders, allowing for lots of common stockholders who have no control or responsibility within the business. Stocks for C corporations can be sold to non-citizens and non-residents, which can help the business to grow internationally.
Double taxation is one downside to corporations, meaning that the income of the company is taxed at the corporate level and on the individual tax returns of stockholders who take home dividends.
Corporations are required to hold regular meetings and form boards of directors with officers. Most business entity types can choose to incorporate at any time during the lifespan of their companies.
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