Difference Between LLC and Inc.

Introduction

Inc. and LLC 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 LLC, there are other abbreviations, such as Ltd. and Co., which are also used to depict the structure of a business.

LLC vs. Inc.

LLC is an abbreviation that stands for Limited Liability Company. It refers to a type of business structure by placing the abbreviation after a business name, whereas Inc. is an abbreviation for incorporated. Incorporation is a process through which owners of a business legally separate themselves from their business for the purpose of protecting their financial assets. Incorporated companies go through the process of incorporation. While LLC and Inc. are both incorporated companies, the process of incorporation and the business structure is different in both of them. LLC refers to a business that contains both the characteristics of a partnership and a corporation, while Inc. is an abbreviation for incorporated; it specifically refers to a corporation.

Difference Between LLC and Inc. in Tabular Form

Basis of Comparison	LLC	Inc.
Formation	In order to form an LLC, the business must submit articles of organization.	In order to form a corporation, the business has to submit articles of incorporation.
Preference and suitability	LLC is preferred and suitable for small businesses as it is a little less complex than Inc.	Inc. is preferred and is suitable for large businesses as it is a more complex business structure.
Name of Owners	In an LLC, the owners are the members of the company.	In a corporation, the owners are the shareholders.
Creation and Paperwork	Creating an LLC is easy and it does not involve a lot of paperwork.	Creating a corporation is very complex and involves a lot of paperwork.
Taxation process	In an LLC, there is single taxation and the LLC is not seen as a separate legal entity for tax purposes. So, the members have the privilege to choose how the tax is to be paid.	In a corporation there is double taxation which means the corporation as a separate legal entity has to pay taxes from its earnings, and the shareholders also have to pay taxes from the earnings that they receive from the corporation.
Perpetuity	An LLC is affected when a member dies or withdraws from it.	In a corporation, if a shareholder dies or withdraws then the corporation is not affected at all.
Holding of Meetings	In an LLC, there is no legal requirement to conduct meetings regularly.	In a corporation, meetings should be conducted regularly.

What is LLC?

An LLC is a business structure that separates the business owners from their business in order to protect their financial assets. The business owners are not responsible for the business's financial responsibilities like debts or other liabilities. An LLC has to be incorporated.

Steps to form an LLC

In India, before registering as an LLC, the business has to register as an LLP (Limited Liability Partnership) and then the steps to form an LLC are:

• A name should be chosen for the company, which should be unique, and to gain approval for the name, an application is to be submitted to the Registrar of Companies.
•  In order to incorporate a company as an LLC, the digital signature of the concerned company's director is needed in order for the company's name or the information related to the company to get authorized.
•  The company's director's number is to be obtained. When he is present in the country, it is easy to obtain, but when he is not physically present in the country, a special process is required to obtain it.
•  The company has to create a bank account, and when it is done, and all the documents are arranged in the proper order, then the documents are submitted to the Registrar for gaining the incorporation certificate for the company.
•  A tax account number is also required to be obtained by the company for the purpose of income tax deduction.

Types of LLC

The different types of LLCs are:

• A Single Member LLC consists of only one owner and is similar to a sole proprietorship. It is called a 'disregarded entity' because, like a sole proprietorship, the company is considered as a single business entity like the owner, because of which the owner is responsible for the taxes, debts, and transactions of the company.
•  An LLC consisting of multiple members is called a Multi-Member LLC, where each and every owner is responsible for the financial transactions of the company.
•  A family LLC consists of entirely the family members. For taxation purposes, this LLC is treated like a Multi-Member LLC.
•  In an Anonymous LLC, the ownership details are not exposed to the public.
•  A Manager-Managed LLC consists of more than one member, and the members elect from among themselves or from a third party a manager who has to manage the business.
•  In a Member-Managed LLC, the members exercise the entire control over making important decisions for the business.

What is Inc.?

Inc. is an abbreviation that stands for incorporated. This abbreviation is used after a business name to determine the kind of legal structure of the business concerned. It means that the company has gone through the process of incorporation to evolve or officially take the position of a corporation. Hence, Inc. refers to a company or a business that has been incorporated or has become a corporation.

Steps to Form an Incorporated Company or Corporation

Incorporation, or the process through which a company becomes a corporation, involves the filing of paperwork. When a company has been incorporated, it becomes a separate legal entity by separating the business owners from their business to protect their financial interests. So, the company, being a separate legal entity, becomes responsible for its debt and has to pay taxes out of its income. The owners are in no way responsible for any of the company's financial issues.

In order for a company to become a corporation, the steps are:

• The first step in this process is for the company to select a name by which it will be identified, and the company is then registered with this name. This name with which the company is registered is mentioned in the company's memorandum of association. However, the company needs to check whether the chosen name can be adopted, 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 and along with this application a payment of 500 rupees is to be made. The Registrar then permits the company to adopt the name if they are able to fulfill all the necessary legal formalities and documentation within a time period of three months.

1.  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: Name Clause
2.  Registered Office Clause
3.  Objects Clause
4.  Liability Clause
5.  Capital Clause

The document the Articles of Association states the rules and regulations that the internal management system of the company has to abide by.

• The Registrar of Companies then helps the promoters to create the drafts of the memorandum of association and articles of association, as the promoters have no earlier experience in preparing this kind of thing. When these drafts are thoroughly examined by the Registrar of Companies, the final copy of the memorandum of association and the articles of association is made. They are written in paragraphs and are chronologically arranged. Each and every 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 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 evidence 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 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.
•  The S Corporation can be considered as an alternative to LLC. It consists of 100 or lesser number of shareholders. Here, the tax code allows this kind of business structure to pass on the corporation's profits or losses to its shareholders. So, the double taxation that is followed in a C Corporation is avoided here.
•  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.

Main Differences Between LLC and Inc. in Points

Hence, the main differences between an Inc. and an LLC are:

• There is single taxation in an LLC, where the members have the freedom to choose how the tax is to be paid, but there is double taxation in an Inc., or a corporation, where the corporation is treated as a separate legal entity that has to pay taxes from its earnings and the shareholders of the company also have to pay taxes from their income from the corporation.
•  The creation of an LLC is easier in comparison to the creation of a corporation as it does not involve much paperwork and it is suitable for small businesses, whereas the creation of an Inc. or corporation is a much more complex process and is therefore preferable for large companies.
•  The owners of an LLC are called members, and the owners of an Inc. are called shareholders.
•  There is no need to conduct regular meetings in an LLC, but regular meetings are conducted in an Inc.

Conclusion

Hence, LLC and Inc. are abbreviations referring to different business structures. An LLC is also incorporated like an Inc., but the process is different. Inc. stands for incorporated, and incorporation is a process through which a company becomes incorporated where the business owners are legally separated from their business to provide protection to their financial assets. So, LLC and Inc. are both incorporated companies, but the process of incorporation is different in both of them. LLC is specifically used after a business name that consists of both the characteristics of a business partnership and a corporation, but Inc. is specifically used to describe that a business is a corporation.