Difference between LLC and INC
A corporation is one of the oldest types of business entities that can be formed. Limited liability companies (LLC) have only been in existence in the U.S. since 1977 when Wyoming became the first state to allow LLC formation. LLCs have some of the features of a corporation such as limited liability protection, but they have the operational flexibility of a partnership or a sole proprietorship.
LLC
LLC stands for Limited Liability Company.
It is a very popular form of entity in United States but does not have existence in India.
It has benefits of Corporation, Partnership and Proprietorship, thus it is a hybrid business entity.
It is an unincorporated association.
There are members in an LLC.
The liability of Members is Limited just like a Corporation.
There is choice of Tax Regime, that is, it can choose to be taxed as Sole Proprietor, Partnership, S Corporation or C Corporation.
Generally, an LLC has a Pass-through Taxation means no double taxation except in case of C Corporation. The tax liability passes to the hands of members and taxed at individual rate.
It can be formed with only one member. Also, in case of multiple members, managing powers can be exercised by members itself of which shareholders in a Corporation are often deprived of.
It is often treated as a separate legal entity but does not have perpetual existence. It automatically gets dissolved if a member decides to withdraw/ sell his interest in the business.
Taxation:-
- In an LLC opting as a sole proprietor, the sole member reports in his individual tax return income from LLC.
- In an LLC opting as a partnership, the members report in their respective tax return income allocated to them from LLC.
- In an LLC opting as S Corporation, where members report their tax return like partnership but have status of a Corporation.
- An LLC opting as C Corporation is treated as a regular Corporation.
Unlike a corporation, LLCs do not have the option of issuing stock as a way to raise capital. Furthermore, LLCs cannot have an initial public offering that allows the public to invest in the company.
An LLC have less paperwork. Accounting books maintained are less statutory and financial statements are not required in that much detail which a corporation is required to prepare. Also, there is no requirement of holding statutory meeting, only recorded activities are to be maintained.
INC
INC stands for Incorporation and used in the name of Corporation.
It is popular in US, UK etc; in India too Limited Company is a very similar form of Corporation.
As the name suggests, it has to be incorporated under the law of land.
There are shareholders in a corporation who are owners. There is a definite structure of Shareholders, Directors, Managers etc., hence shareholders are often deprived of management of Corporation.
The liability of shareholders is limited.
There is no differential tax regime, all corporations are taxed likewise. At the rate 30% in India.
There is Double Taxation, one at the corporate level (Income tax) and other when dividends are distributed to shareholders (Dividend Distribution Tax).
In India, min. 1 in case OPC, min. 2 in case of Private Company and min. 7 in case of Public Company are required for its incorporation.
Separate legal entity, Perpetual existence are some other popular features.
A corporation may have different classes of stock that help the company raise additional funds.
Corporations have more requirements to adhere to in terms of record keeping. Corporations are required to maintain a ledger detailing how the company reached important decisions. Articles of Association, Memorandum of Association and Books of Accounts are statutorily required in India.
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