When starting a business, there are many corporate practices available to owners, shareholders, or partners that allow for maximization of efficiency in operation and taxation.
A limited liability company is one that allows multiple owners to claim individual portions of both profits and taxes, so that spreading out the ownership amongst two or more people will both return equivalent shares and shoulder equal burdens.
By contrast, incorporating a company allows the business to go public, allowing shares of the company to be sold to venture capitalists willing to invest more money into the company's growth.
The choice of limited liability company vs incorporation structures come down to the fiscal needs of a growing business and the ability of ownership to bear costs and concerns of a company.
Limited liability companies -- known as LLCs -- are called as such due to their protection from lawsuits; plaintiffs can only get the company's finances or property in a settlement, rather than an individual's.
Ownership of an LLC, in addition, spreads around not only the profits but the tax burden in equal shares to the partners.
LLCs are a popular choice for law firms and proprietorship ventures in which the authority is not concentrated in one person.
Partners in an LLC are not taxed based upon both their income and property taxes, so that they do not fall under double risk taxation.
An LLC, however, cannot go public, so that all outside financial reliance must be done of the company's own accord, rather than relying on stock investors to channel capital into their business.
This ultimately limits the size of LLC versus inc.
companies; even the largest in the country does not crack the Fortune 500.
Business owners looking to expand and gather larger market shares more often turn towards incorporation, with the advantage of private ownership allowing for greater resource allocation.
Venture capitalists pay extremely close attention to the capability and potential of incorporated businesses, and ownership with a committed plan or attractive options should have little difficulty finding investors.
Incorporated businesses, unlike LLCs, allow for centralized executive decisions in the form of a CEO or a CFO who both approves major policy decisions and gains the largest share of profit when stock prices rise.
An incorporated business, however, is not subject to the tax flexibility of an LLC; while a limited liability company partner needs only check a box on their tax form to facilitate the proper taxation, a company that goes public requires a massive amount of paperwork and legal forms in order to finalize the move.
In addition, corporations often face double taxation and may have a maximum limit of shareholders -- usually thirty-five -- that caps investments due to anti trust laws.
The decision between an LLC vs Inc business plan is one that must be carefully analyzed with a company's owner and his attorneys.
Small and medium sized companies across America make the decision each day which path their operations should take.
Often, the choice is a function of either retaining control of the company through partnerships, or expanding via shareholders to maximize profits.