Inc. vs LLC: What's the Difference Between Incorporating and Forming an LLC?
"Inc." means a Corporation — either C-Corp or S-Corp. An LLC is a different entity type. For most small businesses, an LLC is simpler, cheaper, and more flexible. Incorporate only if you need stock options, VC funding, or plan to go public.
Inc. vs LLC: Side-by-Side Comparison
| Category | Inc. | LLC |
|---|---|---|
| Entity Type | Corporation (C-Corp or S-Corp) | Limited Liability Company |
| Liability Protection | Full personal asset protection | Full personal asset protection |
| Default Taxation | C-Corp (double taxation) | Pass-through (single taxation) |
| Governance | Board, officers, bylaws, minutes required | Operating agreement only |
| Profit Sharing | Proportional to stock ownership | Flexible — any split members agree to |
| Investor Appeal | Preferred by institutional investors | Less familiar to VCs |
| Employee Stock | Stock options available | Profits interests only |
| Best For | Funded startups, large companies | Small businesses, partnerships, real estate |
Entity Type
Corporation (C-Corp or S-Corp)
Limited Liability Company
Liability Protection
Full personal asset protection
Full personal asset protection
Default Taxation
C-Corp (double taxation)
Pass-through (single taxation)
Governance
Board, officers, bylaws, minutes required
Operating agreement only
Profit Sharing
Proportional to stock ownership
Flexible — any split members agree to
Investor Appeal
Preferred by institutional investors
Less familiar to VCs
Employee Stock
Stock options available
Profits interests only
Best For
Funded startups, large companies
Small businesses, partnerships, real estate
Understanding the Terminology
"Inc." stands for "Incorporated" and means the business is a Corporation. When someone says they've "incorporated," they've formed a Corporation — not an LLC.
An LLC (Limited Liability Company) is a separate entity type created in the 1990s as a hybrid between corporations and partnerships. It combines the liability protection of a corporation with the tax simplicity of a partnership.
Both provide liability protection, but they differ in governance, taxation, and flexibility.
Tax Treatment
Corporations default to C-Corp taxation (21% corporate rate + tax on dividends). They can elect S-Corp status to get pass-through taxation, but with restrictions (max 100 shareholders, US residents only).
LLCs default to pass-through taxation. Single-member LLCs are taxed as sole proprietorships. Multi-member LLCs are taxed as partnerships. Either type can elect S-Corp or C-Corp taxation.
LLCs have more tax flexibility out of the box — they can choose from four tax classifications, while corporations are limited to C-Corp or S-Corp.
Governance & Compliance
Corporations require formal governance: a board of directors, officers (president, secretary, treasurer at minimum), annual meetings, corporate minutes, and bylaws. Failing to follow these formalities can result in "piercing the corporate veil" — losing your liability protection.
LLCs have minimal governance requirements. An operating agreement is recommended but not always legally required. There are no meeting requirements, no minutes to keep, and no mandatory officers or directors.
Formation Process
Incorporating requires filing Articles of Incorporation, creating bylaws, holding an organizational meeting, appointing directors and officers, and issuing stock certificates.
Forming an LLC requires filing Articles of Organization and creating an operating agreement. That's it. The process is significantly simpler.
Cost Comparison
State filing fees are usually the same for both. The cost difference comes from ongoing compliance.
Corporations need more expensive tax preparation, potential corporate counsel for governance, and the time cost of maintaining corporate formalities.
LLCs are cheaper to maintain year-over-year for small businesses that don't need the corporation-specific features.
Which Should You Choose?
Choose Inc. if...
- You plan to raise institutional investment (VC, PE)
- You want to offer employee stock options
- You plan to go public or seek acquisition
- You're building a company with many shareholders
Choose LLC if...
- You're a small business or side hustle
- You want the simplest business structure
- You want flexible profit distribution
- You don't plan to raise VC funding
- You own real estate or investment properties
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Frequently Asked Questions
Is "Inc." the same as a corporation?
Yes. "Inc." stands for "Incorporated" and indicates the business is a corporation. Other corporate designations include "Corp." and "Co."
Can an LLC use "Inc." in its name?
No. LLCs must use designations like "LLC" or "L.L.C." in their name. Using "Inc." or "Corp." when you're an LLC would be misleading and is not allowed.
Which is easier to form — Inc. or LLC?
An LLC is easier. Less paperwork, no bylaws to create, no board to appoint, no stock to issue. Most people can form an LLC in 15–30 minutes online.
Can I change from Inc. to LLC or vice versa?
Yes. Most states allow conversions between entity types. The process varies by state and typically costs $100–$500 in state fees plus legal costs. Consult a business attorney for your state's specific requirements.