When you are starting a business, one of the most important things that you need to do is choose the structure of your company. This means that you need to choose the right business entity type for your company. Selecting one of the right business entities is a very important decision as it would influence the financial and legal implications for your business.
Basically, the amount of taxes you pay for your company depends on your business entity you choose, and so does the ease of getting a small business loan or raising money from investors. Plus, if someone sues your business, your business entity structure determines your risk exposure. The legal structure of the business is determined by the business type you choose. It tells how many owners or investors that type of business can have. And when you choose a business type, you will need to select an abbreviation such as LLC, Ltd, Co, or Inc., after your business name to indicate its structure.
So, this article would explain all about the various kinds of business structures and what does Co., LLC, Ltd., and Inc., stand for. Keep reading to learn all.
A business entity is an organization that has been created by an individual or individuals to conduct business, partake in trade and similar business activities. There are many different types of business entities. A business’s entity type dictates both the structure of that organization and how that company is taxed.
What are the types of business entities?
As mentioned above as well, the kind of entity you choose would determine how your company is taxed and structured. For instance, a sole proprietorship has to be owned and operated by a single owner. And if it is a partnership, then there are two or more owners. Moreover, if you open a business as a sole proprietorship, this means for tax purposes, you’re a pass-through entity. This means that the taxes are passed onto the business owner.
Conversely, if you start your business as a corporation, this means the business exists separately from its owners, and therefore, pays separate taxes. Normally, to build your business structure, you will have to register in the state in which your business is located. Below is the list of business entities available in the US:
- Sole proprietorship – Unincorporated business with one owner or jointly owned by a married couple
- General partnership – Unincorporated business with two or more owners
- Limited partnership – Registered business composed of active, general partners and passive, limited partners
- Limited liability partnership – Partnership structure that shields all partners from personal liability
- Limited liability limited partnership – Type of limited partnership with some liability protection for general partners
- Limited liability company (LLC) – Registered business with limited liability for all members
- Professional limited liability company – LLC structure for professionals, such as doctors and accountants
- C-corporation – Incorporated business composed of shareholders, directors, and officers
- S-corporation – Incorporated business that is taxed as a pass-through entity
- Professional corporation – Corporate structure for professionals, such as doctors and accountants
- B-corporation – For-profit corporation that is certified for meeting social and environmental standards
- Nonprofit – Corporation formed primarily to benefit the public interest rather than earn a profit
- Estate – Separate legal entity created to distribute an individual’s property after death
- Municipality – Corporate status given to a city or town
- Cooperative – Private organization owned and controlled by a group of individuals for their own benefit
As you can see, state governments in the US recognize more than a dozen different kinds of business entities. But out of all the available ones, many small business owners choose between six of them including:
- Limited Liability Company (LLC)
- Limited Partnership (LP)
- General Partnership
- Sole Proprietorship
What does Co. means in a company?
“Co” is just an abbreviation for the word “company”. And we all know that a company is an association of people working in a commercial business. So, the company can be a limited liability company, sole proprietorship, or another structure. Abbreviating “company” as “co” does not have a specific meaning regarding a business’s legal structure. This means that it is not important to use it, although some people do use this abbreviation in their company names.
What does LLC mean in a business name?
“LLC” is the designation for a limited liability company. It is used after the company name that you select, for instance, Best Services LLC, where “Best Services” is the company name and LLC designates the kind of business entity you have selected. An LLC combines features of corporations and partnerships. Owners/members are protected from liability. The profits and losses in an LLC are passed through to its owners. These owners then report them on their personal income taxes. This process makes working within an LLC less complex than other businesses.
In case a member leaves the LLC, the current business gets dissolved and the rest of the members then have to decide if they want to form another new business out of it. The LLCs that are formed have to follow the rules of the state in which it is being formed. Formation papers are filed with the Secretary of State along with articles of incorporation to form an LLC. And with that, an LLC is formed.
What does Inc. mean in a business name?
Inc. is the abbreviation for incorporated. It is used after the company name that you select, for instance, XYZ Services Inc, where “XYZ Services” is the company name and Inc., designates the kind of business entity you have selected. An incorporated company, or corporation, is a separate legal entity from the person or people forming it. The people forming it are usually called officers or directors who buy shares in the company and have the responsibility for its operation. Incorporation limits an individual’s liability in case of a lawsuit.
Since a corporation is a legal entity on its own, it is responsible for its own debts and pays taxes on its earnings. The corporation can also sell stock to raise money for itself. Unlike the LLC, a corporation is able to continue as an entity even after the death of a director or after a stock sale. A corporation is formed by sending an application to the secretary of state and filing articles of incorporation. And the corporation that is formed in a state has to follow the rules set by that state.
Since many of the corporations cost a lot to administer and are very complicated, the US Small Business Administration recommends that small businesses should not incorporate unless they have established themselves as a large company. As mentioned above, corporations must add a corporate designation, such as Inc. after their business name. But this rule is not there for all the states, although it is always a good idea to add it as it increases credibility of the business.
What does Ltd. mean in a business name?
A limited company can be abbreviated to Ltd. This abbreviation comes after the company, just like for the others. In a limited company, directors and shareholders have limited liability for the company’s debt, as long as the business operates within the law. Its directors pay income tax and the company pays corporation tax on profits. But this term is the same as “Inc” and is used interchangeably.
Responsibility for company debt is usually limited to the amount a person has invested in the company. Furthermore, a limited company can be set up in four different ways. In some companies, a shareholder’s liability is limited to specific predetermined amounts, drawn up in a memorandum. Such businesses are known as “private companies limited by guarantee”, and the shareholders in this business are called guarantors. Charities and social enterprise groups frequently use this structure.
Other Business Entities to Know
Other than the business entities mentioned above, there are some others that use the abbreviations – Co, Ltd, Inc and LLC. In fact, the following list contains examples of endings which all apply to “general corporations” having shareholders, directors and officers: Inc., Co., Corp., and Ltd. These all indicate the business is a corporation. Incidentally, some states allow an LLC or Limited Partnership to use “Ltd.”
Let us get into this to understand all the business entities better and the abbreviations they use with their business names:
A close corporation is a form of Corporation designed to cut through some of the corporate separation between the stockholders and officers. These corporations are allowed to eliminate the board of directors. Close corporation laws also limit the number of stockholders allowed. Historically, this was only to be used with family businesses. It is old-fashioned since most family businesses today instead form an LLC if they are not comfortable with the rigid hierarchy of a corporation.
S corp and C corp
S-corp and C-corp are not different forms of corporations at the state level. Instead, those are just tax elections made with the IRS and Division of Revenue after the corporation is formed. The S-corp or C-corp is not a designation filed with the Division of Corporations at the state level. Instead, when a corporation is formed, it is defaulted to the C-corp status. To elect an S-corp, you should file IRS Form 2553 with the IRS within 75 days of incorporating or within 75 days of the beginning of the calendar year.
Another one of the many business entities available is the B-corp, which is a B-Lab certification that can be applied for on behalf of certain entities that provide larger social benefits other than maximizing profits. Similarly, there is another one called the “Public Benefit Corporation”, which is a corporation that can provide stated public benefits. This is really nothing but a regular for-profit corporation where the corporation is allowed to give away to or benefit other causes and concerns consistent with its Certificate of Incorporation without risk of stockholder lawsuits for waste of corporate assets.
Non profit corporation
There is also an option to open a not-for-profit corporation, which is a type of non-stock corporation. Usually these are organized as public charities or private foundations. They do not have stock and instead are run by members through a board of directors. If a non-stock corporation applies for tax exemption by filing IRS Form 1023 and receives a tax determination letter, it can accept donations tax deductible to its donors as an IRS-approved 501(c)(3) corporation.
Another one of the business entities is the Statutory Trusts, which was formerly known as “Business Trusts”. These are entities which function much like traditional trusts with beneficiaries and trustees. These are flexible and governed by a Trust Agreement. They are not recommended for most business purposes because they require a Delaware headquartered Trustee.
Start your LLC or Inc – IncParadise can help you!
Aside from choosing the entity, you also need to choose the state of incorporation. Since the law where your business is located may not be favorable to your company, such as California, Delaware and Nevada. Choosing to incorporate in Delaware may help resolve problems with ownership disputes and other issues down the road. Delaware is known for having the best corporate laws and courts to resolve ownership and management disputes. Moreover, the shield of Delaware business law tends to better protect owners and managers from lawsuits.
So, have you been thinking of starting your business by selecting one of the business entities available? IncParadise can help you incorporate in all 50 States. Just select the right state for incorporation and your business entity. We will then help you in starting your business here. We also offer the registered agent service and have incorporated thousands of companies here. So, what are you waiting for? Contact us today to have your company incorporated soon.