Business Formation & Dissolution
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Limited Liability Company (LLC)
Personal asset protection? Check. Business and tax flexibility? Check. This is a popular choice for many new businesses.
What is an LLC and what does LLC stand for? A limited liability company (LLC) combines elements of a partnership, sole proprietorship and a corporation. Consider your type of business, personal assets and liability risk when deciding whether to form an LLC.
How is an LLC Similar to a Corporation or Partnership
Now that we know what it stands for, what does LLC mean? Limited liability means that its owners, also called members, are usually not personally responsible for the LLC’s debts and lawsuits. If an LLC files for bankruptcy, the members do not have to use personal money to pay the company’s debts. If the LLC faces a lawsuit, the members do not risk losing their home to cover a settlement.
In the eyes of the IRS, however, LLC taxes usually resemble a sole proprietorship or partnership. The LLC does not pay income taxes itself; instead, the owners list business profits and losses on their personal tax returns. The LLC can choose to tax itself as a corporation. To do so, it must follow corporation tax law and filing requirements.
LLC owners must file formal documents with their state, pay a filing fee and comply with other regulations before hanging out the shingle. In some states, LLCs have to pay an additional franchise tax. Partnerships and sole proprietors don’t face the same level of paperwork and fees. Unlike a corporation, an LLC does not issue stock and is not required to hold annual meetings or keep written meeting minutes.
When you set out to create a business, you first need to decide what kind of legal structure your company is going to have. Incorporating (and including “Inc." after your company's name) is one option.
And yet you may have wondered — both for you and your business — what does Inc. mean? Would you be better structured as a limited company? The more you know, the clearer your options will be.
What Does Inc. Stand For?
When a company has the letters “Inc" after its name, it means the company has been incorporated. There also are other abbreviations that a company can have after its name:
Corp. is another option. The difference between Inc. and corp. is that Inc. means the company has been incorporated. If a company uses corp., it usually is incorporated, but may not be.
Co. is an option that simply states the business is a company, and it may not be incorporated.