If you are starting a new business, you have to make some basic decisions about how the company will be set up. For example, some small business owners just want to maintain a sole proprietorship in order to keep things simple. While this involves the least paperwork, it subjects your income to the self-employment tax, which is a little over 15%, and it also leaves you personally liable for the company’s debts. Thus, many small business owners choose to incorporate. But even then you have options. Let’s take a closer look at the difference between incorporating and forming an LLC.

Inc. vs. LLC – Which Is Right for Your Business?

The difference between forming a Limited Liability Corporation (LLC) as opposed to a Corporation (Inc.) often comes down to things such as:

  • Desired flexibility
  • Source of capital
  • Scope of business

While both options help to protect your personal assets and require the separation of your personal and business accounts, there are a number of differences. LLCs are designed to be a very simple way to incorporate. Taxes are not as complicated, and your management structure can have a greater degree of flexibility since the formation is member-based rather than stockholder-based.

Forming a corporation (Inc.) loses some of those benefits, but if you want to find outside investors rather than providing your own business capital, being a corporation is often preferred. Also, if your company operates on a global scale, you will want your business to be a corporation because this type of business is recognized in other countries.

In a future article, we’ll take a close look at the difference between a couple of corporation types: C corps and S corps.

Getting All the Business Formation Help You Need

If you are a small business owner, you want an attorney who is also a small business owner to walk you through the process. Call 844-695-1487 to contact Pokala Law, and get your business formation assistance from our small business to yours.