When establishing a firm, the most important question in any entrepreneurs mind is whether to open it as a sole proprietorship or to incorporate the firm as an LLC or a corporate firm. When you incorporate a firm, the company is registered and recognised by the state of its incorporation. When a company is incorporated it becomes a separate entity with its own set of rules and regulations. The company gets a separate existence from the owners. There are two ways of incorporating a company- the LLC or the Limited Liability Company and the INC or corporation. Both the entities have different registration processes and each has its own set of advantages and disadvantages. To register your company as LLC in New York, consult https://windsorcorporateservices.com/form-an-llc-in-ny/.
Differences between an LLC and INC
- The first difference between both the entities is the flexibility in management structure. While the INC needs the board of directors to supervise the functioning and take major decisions regarding the company and the managers to take care of the day to day functioning of the company, an LLC does not have any formal requirement about the management systems. The LLC have to just outline the details in the operating agreement about the management and other key functions of the company management. While any changes to the INC management structure need a lot of meetings and paper work, the changes in LLC can be easily done with minimum paper work. The profit sharing, addition and deletion of members and other important aspects of an LLC can be changed by making simple alterations to the operating agreement, which is not the case with an INC.
- The next major difference is taxation. While the LLC incomes and losses are reported in the owner’s personal income tax returns, an INC pays taxes as a separate entity. The owners of INC have to pay taxes on the dividends received by them during a financial year. This leads to double taxation for INC while the taxation of LLC is simple and straight forward.
- The owners of LLC can report the losses incurred during the setting up phase of the company as their personal losses and claim deductions while it is not the case of INC as they are taxed as separate legal entities.
- While the process of registering an LLC is simple and requires filing of simple forms with the state or filing online forms https://windsorcorporateservices.com/form-an-llc-in-ny/ . The process of registering an INC is complex and requires a lot of correspondence and legal work with the state along with regular meetings of the board of directors.
- There is no compulsion for LLCs to conduct the yearly Annual General Meeting which is a compulsory formality for an INC.
- The LLCs are not required to maintain the cumbersome records and follow the strict rules of accounting and book keeping meant for the INCs.
The owners have to keep in mind the objectives of the company and its long term and short term goals before deciding to incorporate it as LLC or INC. if the owners are still confused on choosing the right incorporation for their firm, they can take help of corporate service companies like Windsor corporate services, who have the required experience to guide their clients about the right kind of choice. They also help the clients in completing all the legal formalities of incorporation and also do the required correspondence with the state authorities on behalf of the clients.