LLC vs Incorporation - Are they the same?

LLC vs Incorporation: Deciding whether your business should be a limited liability company (LLC) or a corporate entity is a choice many business owners have to determine at some point. It really does involve more than deciding whether you want LLC or Inc at the end of your company’s name.

You’ll have to consider the pros and cons of each when determining LLC vs incorporation.

There are a number of similarities between an LLC and a corporation. Both are legal entities that are recognized as being separate from the owners. Both provide protection for the personal assets of the owners should the business fail, and they also both have relatively few ownership restrictions.

One of the primary differences is that incorporation of a business involves the issue of stock, and the entity is then owned by the shareholders who buy that stock. A limited liability company is simply owned by the actual members or managers of that company.

Because a corporation may have multiple shareholders it’s necessary to have regular meetings to keep everyone up to date with what’s going on with the company. Legally there must be at least one annual meeting each year and minutes must be kept and made available to all. The LLC does not have to have regular shareholder meetings since there are no shareholders in this situation.

A further difference in the LLC vs incorporation question is that the incorporation is a taxable entity. The company will pay taxes on any profit based on the corporate tax rate. The LLC is considered to be a “pass through” tax entity so its profits or losses will be reflected in the member’s individual taxes. Essentially this means that the incorporation of a business will result in double taxation for the company’s profits since the company will file taxes as will the individual shareholders who receive any dividends.

When trying to determine LLC vs. incorporation you should also remember that with the LLC the business frequently closes when one of the members or partners die. The incorporation may continue on regardless of what happens with the individual shareholders. Additionally, the corporation can carry on business as usual through a sale of ownership while the LLC’s daily operations usually cease altogether during that time period.

Corporations offer a degree of anonymity that is not provided with the LLC. The corporate name is used for business transactions, not those of the shareholders while with the LLC this is often not the case. Corporations are able to provide employees tax deductible benefits such as health insurance, life insurance, and retirement plans that is not an option for the limited liability company.

The bottom line when trying to figure out LLC vs. incorporation is the degree of protection that will be provided for your personal assets and your family. You don’t want to end up in a situation where you are personally ruined if the business should go under. Both of these forms of organization will provide a certain level of safety.

Therefore it's best to consult with a corporate or taxation lawyer who can study which business structure is best suited for your business, and give you a detailed LLC vs incorporation breakdown to help you make the right decision. Ultimately, it's going to come down to LLC vs incorporation - which one is right for you based on your business goals. Put it into your business plan.

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