Introduction
Inc and Ltd are abbreviations used to indicate the legal structure of a business by placing them after a business name. Deciding the structure of a business is one of the essential steps while starting a business, and the legal structure of a business can be determined by various factors, which include the type of business, the number of people owning or investing in the business, and lastly how the business manages its tax and liability issues. Apart from Inc and Ltd, there are other abbreviations, such as LLC and Co., which are also used to depict the legal structure of a business.
Inc vs. Ltd
Inc is an abbreviation that stands for 'incorporated'. Incorporation is a process through which owners of a business legally separate themselves from their business to protect their financial assets. This protection can be found in incorporated companies and it is called Limited Liability. Inc and Corporation are terms often used interchangeably as the same features are offered by both of them, and in terms of nature, both of them are very similar. So, an incorporated company can also be called a corporation but when a company is registered as an Inc and another one as a Corporation, then both of them are recognized as separate entities. Ltd is an abbreviation that stands for Limited, and it can be said to be a type of corporation because it has some features of a corporation. Every company goes through the process of incorporation to become an incorporated company or corporation but according to state laws, every incorporated company or corporation has to adopt a certain abbreviation to indicate the kind of corporation the company has incorporated into. Hence Inc. stands for incorporated and is similar to a corporation. Ltd stands for Limited, and this abbreviation is also used after a business name to indicate the kind of corporation the business has incorporated into. Although both of them have Limited Liability Protection, there are a few differences in both of their business structure.
Difference Between Inc and Ltd in Tabular Form
| Parameters of Comparison | Inc | Ltd |
| Meaning | Inc is an abbreviation for incorporated and is used by a company that has been incorporated. It stands as a separate legal entity from its owners and provides financial protection to them from the company’s liabilities. | Ltd is an abbreviation for Limited. It is a type of company where the investors of the company or the people who are giving guarantees are supplied with the powers and liabilities of the company. It also stands as a separate entity since it is a type of corporation and limits the personal responsibility of the members of the company in case of liability issues regarding the company. |
| Management System | A board of directors manages an Inc. company and according to the established laws of the government, officers are required to be appointed by Inc. companies. | To run an Ltd company, one director is needed at least, and the officers required in an Ltd company are to be appointed at various levels. |
| System of Taxation | In an Inc. company, there is double taxation. | In this case, a Ltd is similar to an LLC as both of them have single taxation. |
| Owners | The owners of an Inc. company are called stockholders. | The owners or shareholders of a Ltd company are called Members. |
| Preferability | Inc is preferred and suitable for large businesses as it is a more complex business structure. | Ltd is preferable for small businesses. |
| Countries where it is prevalent | The designation of Inc. is mainly associated with American companies. | Ltd is used in the UK, Australia and India. |
What is an Inc?
Inc is an abbreviation for incorporated. This abbreviation is used after a business name to determine the kind of legal structure of the business concerned. This abbreviation is primarily used by American companies. It means that the company has gone through the process of incorporation to evolve or officially take the position of a corporation. Incorporating a company gives the protection of Limited Liability, which means that if a business is incorporated, then it becomes a separate legal entity and provides its owners financial protection from the business’ liabilities like debt or bankruptcy. However, if a company is not incorporated, then the owner of the business and the business itself will be considered as a single legal person, and the owner will be accountable for all the financial and other responsibilities of the business.
A board of directors is required to manage an Inc. company, and the company also needs to appoint officers according to the established laws of the government who will assist in its functioning. There is double taxation in an incorporated company or corporation, where the company as a separate legal entity has to pay taxes from its earnings as well, and the owners of the company, who are called stockholders, also have to pay taxes from the earnings that they receive from the company. The process of incorporating a business includes filing articles of incorporation, which contain the location and the main purpose of the business. The process of incorporating a business includes several steps, which are:
- First, the company has to select a name by which it will be identified and registered. However, before registering the name, the company needs to check whether the chosen name is available for adoption and for this, the promoters of the company are required to write and send an application to the Registrar of Companies of the concerned state where the company is being set up with 500 rupees note along with this application. The Registrar then permits the company to adopt the name if they can fulfill all the necessary legal formalities and documentation within a time of three months, after which the company gets successfully registered with the chosen name and it gets mentioned in the company's memorandum of association.
- The company’s memorandum of association is then prepared, which is like a rulebook of the company, where the field of business of the company, its objectives, and the kind of business it plans to begin is mentioned. It consists of five clauses which are:
(i) Name Clause
(ii) Registered Office Clause
(iii) Objects Clause
(iv) Liability Clause
(v) Capital Clause
The document the Articles of Association states the rules and regulations that the internal management system of the company has to follow.
- The promoters of the company are then helped by the registrar of companies because they have no earlier experience in preparing the drafts of the memorandum of association and the articles of association. When these drafts are thoroughly examined by the Registrar of Companies, the final copy of the memorandum of association and the articles of association are made. They are written in paragraphs and are chronologically arranged. Each article has to be signed individually by all of the subscribers or by the representatives in front of a witness, as only then will it be valid.
- The promoter of the company may then hire an attorney to complete the legal and complex document works, who will exercise the power to act on behalf of the concerned company and its promoters. This attorney has the power to make modifications, to the memorandum of association, the articles of association, and other documents filed with the Registrar of Companies.
- A Statutory Declaration Form has to be submitted, mentioning that all of the documents of incorporation comply with all the necessities of the company act.
- A certain amount of fees is to be paid to the Registrar of Companies during the incorporation process which depends upon the nominal capital of the concerned company, which also has a shared capital.
- If all the official requirements have been fulfilled by the company and the Registrar is completely satisfied with it, then he will enter the name of the company in the register and will issue a certificate of incorporation which is the proof that the company has fulfilled all the requirements of incorporation and has been incorporated.
Types of Inc
The different types of Inc. or incorporated companies or corporations are:
- C Corporation
- S Corporation
- Non-Profit Corporation
C Corporation
A C Corporation can be categorized as the most common form of incorporated company that contains most of the features that are found in a corporation. Here, the owners who earn profits are individually taxed along with the corporation itself being taxed as an individual legal business entity.
S Corporation
The creation process of a S Corporation is the same as a C Corporation but the difference between a C Corporation and a S Corporation lies in the limitations of the owners and its taxation system. It consists of 100 or a smaller number of shareholders, and double taxation is not followed here. Here, the tax code allows this kind of business structure to pass on the corporation’s profits or losses to its shareholders.
Non-Profit Corporation
Non-Profit Corporation, as the name suggests, includes those companies that work for charitable, religious, or educational purposes without any intention of making profits. They are not required to pay taxes.
What is a Ltd?
Ltd is an abbreviation for Limited. The designation of Ltd is mainly used by companies in the UK, Australia, and India. A Limited company is also a type of Corporation and enjoys Limited Liability protection like an Inc, where the company is recognized as a separate legal entity that separates itself from its owners and provides them financial protection from the liabilities of the company. Ltd and LLC are very similar to each other, and often, in some places, Ltd is used as a designation in place of LLC as both of them provide the same features in terms of taxation and Limited Liability. In a Limited Company, the power lies in the hands of a group of individuals, who are either the guarantors or the investors of the company. In an Ltd company, there is a single taxation system as the company is not seen as a separate legal entity in terms of taxes, and so the members have the privilege to choose how the tax is to be paid. The shareholders of an Ltd are called members. In the case of shares, there are some restrictions posed by an Ltd company on its shareholders, and the shareholders have a separate legal body for themselves in an Ltd company. Taking into account the management system of a Ltd, one director is at least needed to run a Ltd company, and the required officers for functioning are appointed at various levels.
Types of Ltd
A Ltd company can be divided into two types based on the kind of its members, which are: -
- Private Limited Company
- Public Limited Company
Private Limited Company
In a recognized stock exchange, a Private Limited Company is not included because their shares are generally not made for the public, and so their shares are not publicly traded. The shareholders of a Private Limited Company generally include relatives and close friends and shares cannot be transferred by any shareholder without taking prior permission from the other investors of the company. A Private Limited Company could have a maximum of 50 shareholders and a minimum of 2 shareholders. The requirements for disclosure are less strict in a Private Limited Company.
Public Limited Company
In a Public Limited Company, there is the facility that shares can be sold on the stock market in order to raise money. Moreover, there are no restrictions regarding the transfer of shares, and the shareholders can freely transfer their shares without any prior permission. The limit of minimum number of shareholders that a Public Limited Company can have is 50 individuals, and the number of maximum shareholders has no limit.
Major Differences Between Inc and Ltd (In Points)
- Inc and Ltd are abbreviations that are used after a business's name to indicate its legal structure. Inc is an abbreviation of Incorporated, and Ltd is an abbreviation of Limited. Inc and Ltd are both types of Corporations. Inc and Corporation are often used interchangeably as the features offered by both of them are very similar, but when a business registers itself as an Inc and another one as a corporation, then they are seen as two separate legal entities. Ltd, however, is also a type of Corporation, but not all features of a corporation can be found here. So, in that way, it is different from Inc.
- A board of directors is involved in the internal management of an Inc, and for the proper functioning of an Inc, officers are appointed by the company according to the established rules of the government. This is what the internal management system of an Inc. looks like. However, in an Ltd company, one director is at least needed to manage the company, and the officers required in an Ltd company are selected through several rounds of evaluation.
- In an Inc, there is double taxation, and in an Ltd, there is single taxation. In an Inc, the incorporated company or corporation is seen as a separate legal entity that has to pay taxes from its earnings as well, and the owners of the company, who are called stockholders, also have to pay taxes from the earnings that they receive from the company. In an Ltd, this feature of single taxation is similar to an LLC, where the Ltd company is not seen as a separate legal entity in terms of tax purposes, and members have the privilege to choose how the tax is to be paid.
- Inc is a more complex business structure and is preferable for large businesses, whereas Ltd is a less complex business structure and is suitable for small businesses. The Inc business structure can be mainly seen in American Companies whereas Ltd is used in companies situated in the UK, Australia, and India.
Conclusion
Hence, Inc and Ltd are abbreviations referring to different business structures. Inc stands for incorporated and is similar to a corporation as both of them have similar features, but both of them are recognized as separate legal entities. An Inc. company is formed when a business is incorporated through the process of incorporation. Ltd is an abbreviation for Limited and is also a type of corporation, but it does not have all the features of a corporation. Both Inc and Ltd provide Limited Liability to the members, and both can be considered as types of corporations, but there are many significant differences in both of their structures. Inc is used after a business name to specifically refer that it is a corporation but since Ltd is similar to an LLC, Ltd is used after a business name that consists of both the characteristics of a business partnership and a corporation.
References
- G. (2021, July 22). Incorporation Definition and Examples. GoCardless. https://gocardless.com/guides/posts/incorporation-definition-and-examples/
- Check out this article. . .What Does LTD Mean: Everything You Need to Know. (n.d.). UpCounsel. https://www.upcounsel.com/what-does-ltd-mean
- Hayes, A. (2023, June 8). What Does Ltd. (Limited) Mean After a Business Name? Investopedia. https://www.investopedia.com/terms/l/ltd-limited.asp
- Incorporation of a Company: Steps Involved Under the Companies Act. (2019, December 10). Toppr-guides. https://www.toppr.com/guides/business-laws-cs/elements-of-company-law/steps-in-incorporation-of-a-company/
- Team, C. (2023, May 28). Corporation. Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/accounting/what-is-corporation-overview/
