Find news, events, articles, videos, and more that answer your questions and keep you up-to-date.
Visit Resource Center
Stay informed on compliance updates
“LLC or Inc?” What is the correct structure for your business? Is it an LLC (limited liability company) or is it a corporation (Inc.)? There is no single, one-size-fits-all answer. To solve the choice of entity puzzle, you must fit together these four different pieces:
These four factors differ significantly between a limited liability company (LLC) and a corporation (Inc.).
Put simply, limited liability creates a wall between a business owner’s personal assets and the assets of the business, protecting the owner’s personal assets from the entity’s debts liabilities and obligations. Limited liability can also protect the entity from the owner’s personal debts, liabilities, and obligations. But, keep in mind, whether the business operates as an LLC or a corporation, all the entity’s assets are at risk for the entity’s debts.
While both an LLC and a corporation offer limited liability protection, there are differences in the way that protection operates.
The second factor to consider in the "LLC vs. Inc." question is who will be calling the shots—both tactically (day-to-day) and strategically (long-term). Who has the right to decide which issues can tip the balance in favor the LLC or the corporation.
Business is about making money. So, every business owner must consider: “How will this company get the money it needs to get started and to grow?”
Investing in a business is also about making money. So, every business investor asks: “What are my financial rights to share in distributions during the entity's lifetime and upon its termination?”
The first difference that most people think of when considering an LLC versus a corporation is taxation. Conventional wisdom touts the LLC as the tax-preferred entity type. However, for many businesses, this might not be the case.
When it comes to the difference between an LLC and a corporation (Inc.), there is no one perfect entity choice. However, considering the four factors listed above well help the small business owner determine the best for his or her particular business.
Information in this article has been updated for 2016 on February 19, 2016. The original publication date was April 14, 2014.