The Top 5 Things to Consider When Choosing Between Inc. and LLC
Deciding between setting up an incorporation (Inc3 min read
Deciding between setting up an incorporation (Inc.) or a limited liability company (LLC) can be a challenge for entrepreneurs and business owners in Los Angeles. It is important to take your time to research your options and seek the guidance of experienced lawyers who can help you assess the regulations and liabilities associated with each type of formation. Here, we dive into the top five things to consider when deciding between Inc. and LLC, helping you make the best decision for your business.
When choosing between Inc. and LLC, the tax structure of your business is an important factor to consider. Generally speaking, LLCs are eligible for ‘pass-through’ taxation, which means that the owners of the company are generally taxed for their profits and losses as individuals through their personal tax returns. On the other hand, Inc.s are usually ‘double taxed.’ This means that profits and losses are initially taxed as an entity, and then the remaining income is taxed on the individual level.
When it comes to taxation, it is important to consider how each type of entity will be taxed in your local municipality. Experienced and well-versed business lawyers in Los Angeles can help you assess which type of business entity will result in improved tax benefits for you and your business.
Liability Protection and Regulation
The most important factor to consider when choosing between Inc. and LLC is the level of liability protection and regulation. An LLC protects your personal assets from being used to pay debts and obligations of the business in the event it is sued or goes bankrupt. Inc., on the other hand, only provides limited liability protection in the form of debts and obligations being paid from the assets of the business entity.
It is also important to consider the regulations and paperwork that comes with each of these entity types. LLCs are often simpler to manage than Incs, as they offer more flexibility in management style and fewer filing requirements.
Another deciding factor to consider when choosing between Inc. and LLC is the ease of raising capital. In Inc., owners are able to generate capital by selling ownership shares and issuing debt or stocks. Alternatively, LLCs are limited to private capital investments, as they cannot generate capital by selling ownership shares.
It is important to consider how each type of entity can help you fulfill your own capital goals. Experienced business lawyers can help you determine the regulations associated with each type of entity regarding capital investments and provide you with more options to increase capital in your business.
The ability to contribute to a personal retirement plan is another factor to consider when choosing between Inc. and LLC. Generally speaking, Inc. are able to deduct retirement plan contributions from their taxable income and LLCs are limited to Roth IRA and Simple IRA plans. For business owners who are looking to take full advantage of their retirement savings, Inc. may be a better option than LLC.
Length of Existence
The final factor to consider when deciding between Inc. and LLC is the length of existence. With an Inc., you are able to continue to operate indefinitely, while LLCs may be dissolved at any time. Therefore, if you are looking to leave an entity in the hands of family or heirs after death or retirement, Inc. may be a better option for your business.
Choosing between setting up an Inc. or an LLC is an important decision for business owners. It is important to consider the tax structure, liability protection and regulation, ease of raising capital, retirement options, and length of existence when deciding between the two. By doing your research and consulting experienced business lawyers in Los Angeles, you will be able to make an informed decision that best suits your business needs.