Business Incorporation Explained

Read on to learn what INC in business means

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business inc explained

Wondering what INC means in business? We see this abbreviation at the end of company names (such as Apple, Inc.). But what exactly does it signify?

Keep reading to discover everything you need to know about “INC.”

INC Meaning

“INC” is short for incorporated. When you see “Inc.” at the end of a company’s name, it simply means the business is a corporation.

This abbreviation is used for both traditional C corporation and S corporation structures.

Note: In the U.K., the abbreviation “LTD” is often used instead of INC.

A corporation is a legal entity

An incorporated business is a legal entity. This entity is recognized, just as a person would be as an individual, for business purposes under the law.

Corporations can be commercial businesses, nonprofit charities, or government, city, town, or club organizations.

A corporation is an entirely separate entity from the people who founded the company. That means it can survive beyond the life of the stockholders or any owners who leave the company.

Stock Shares

When a business incorporates, it creates shares which are sometimes called stock. These stock shares represent ownership of the company.

Incorporation and the issuing of stock shares allow companies to sell some of those shares to raise capital for business operations and expansion. They can also use them as collateral for loans, or equity for venture capital investments.

Companies that plan to expand and go public with an IPO are required to be corporations with issuing stock shares.

How to incorporate your business (form an INC)

To form a corporation, you must complete the proper paperwork and file it with the Secretary of State in the state headquarters of the corporation’s primary address.

While the process and requirements may differ depending on state law, the basic steps for incorporating are as follows:

  1. Name your corporation
  2. Appoint directors
  3. Choose a registered agent
  4. File your Certificate of Incorporation/Articles of Incorporation
  5. Create corporate bylaws
  6. Draft a shareholder agreement
  7. Issue shares of stock
  8. Apply for any necessary business permits or licenses
  9. Get an EIN and review tax requirements
  10. Submit your corporation’s first report

Certificate of Incorporation/Articles of Incorporation

Your Certificate of Incorporation/Articles of Incorporation will need to meet your state’s laws and guidelines.

These typically include the corporation’s:

Fees and Requirements

Fees for registration must be paid along with your application.

There are also annual requirements for filing for corporations. While these annual requirements differ from state to state, they usually include:

Who should incorporate?

The United States Small Business Administration recommends that companies incorporate if they plan on growing substantially.

For example, many new small business owners choose this business structure for liability protection purposes (in other words, to protect their personal assets from possible product liability lawsuits).

How we can help

The rules governing corporation formation and maintenance can be complex and difficult for many business owners to understand or complete on their own.

Luckily, we’ve got your back! Our worry-free services and expert support can help you form your corporation and remain compliant with state and federal laws.

Incorporation Pros and Cons

Still trying to decide whether incorporating is right for your business? Here are the pros and cons.

Advantages of Incorporation

The primary advantage of corporations is that they can issue stock shares. This gives corporations the ability to attract investors and venture capitalists.

Tax liability can also be limited with incorporation and income sharing.

Disadvantages of Incorporation

Traditional C corporations have two significant disadvantages.

The first is double taxation on earnings.

Firstly, profits from the corporation are taxed. Then, the shareholders and business owners must again pay taxes when they receive dividend payments.

Because of this negative ramification, S-type corporations were developed to avoid double taxation. These type of corporations have restrictions, however, which include a limit of 100 shareholders.

The other drawback of incorporation is that it requires more administrative work to file state reports annually, and track shareholder and board of director meetings.

INC vs Corp.

Like “INC,” the term “Corp.” is just another abbreviation for Corporation.

These terms can be used interchangeably. However, INC is more prevalent and widely known. Both shortened words can be used to refer to entities that are incorporated, whether that entity is a business, government, or nonprofit organization.

What type of company is an INC?

As we already covered, the abbreviation “Inc.” means incorporated.

A corporation is a separate legal entity from the business owner, person, or people that formed the company.

Shares

The Board of Directors and company officers own or purchase shares in the incorporated business and have responsibilities for business operations.

Liability Protection

When you incorporate your business, you are protecting your individual assets against business liabilities, debts, and lawsuits.

Can a limited liability company (LLC) be an INC?

While LLC and INC are both forms of business entities, they are different and distinct.

The abbreviation “Inc.” is used for incorporated companies, either C corporation (c corp) or S corporation (s corp).

“LLC” stands for limited liability company. This abbreviation indicates that the business entity is a limited liability company.

Every US state has their own laws about LLC formation, as well as specific requirements about the words you can legally include in your LLC name. No state allows an LLC to include the designation “Inc.” in their registered name.

Can I incorporate my LLC?

It is common for growing startups to launch as an LLC and then want or need to incorporate for financing, tax, or liability purposes.

Converting an LLC to a Corporation

You can indeed convert your LLC to a corporation, or “Inc.”

There are a few ways you can incorporate your LLC. Those steps generally include:

1. Form your new corporation

First, you’ll need to form a new corporation by following the required steps in your business’s state.

2. Merge your existing LLC into the new corporation

Next, you will need to merge your existing LLC into the new corporation.

Once you make the merge, your LLC will be legally terminated and the corporation will now have all the rights and obligations of the LLC.

3. Contribute your LLC’s assets to the newly formed corporation

The next step is to contribute your LLC’s assets to the new corporation in exchange for all the stock in the corporation. Then you can liquidate the LLC.  

4. Assign owner interests to the new corporation

Finally, the LLC owners need to assign their LLC interests to the new corporation. Your LLC will become a wholly-owned subsidiary of the new corporation.

Difference between INC and LLC

The primary difference between INC and LLC is that corporations are owned by many shareholders, while an LLC is typically owned by one or a few individuals.

This ownership difference affects the liability, taxation, and finance options of the business entity.

Can I use INC in my business name?

You can only use “INC” in your business name if your company is formed as a corporation, and is legally incorporated. You cannot just add “INC” to your business name if your firm is not incorporated.

Is it better for a business to be incorporated or an LLC?

Which formation type is best for your business depends on a number of factors.

For example, companies that seek investor funding might opt to incorporate so they can issue stock shares for business financing.

Many other forms of small businesses are best formed as LLCs for the sake of simplicity, fewer administrative/filing requirements, and a more flexible management structure.

Both INC and LLC formation types protect the business owners’ personal assets from personal liability, business debts, and lawsuits.

INC Meaning: Final Thoughts

In summary, “INC” is simply the abbreviation for incorporated. When you see this designation at the end of a company name, it means that company is a corporation.

Depending on your financing needs, operational plans, and other factors, incorporating may or may not be the best choice for forming your new business. It’s best to ask your attorney or legal advisor for their recommendations.

Ready to turn your business idea into a reality? Whether you choose to form an LLC or a corporation, our worry-free services can help you get your new company up and running quickly and compliantly.

Want to learn more about starting, running, and growing a business? Explore important business terms such as EIN and FEIN in our comprehensive guide. Plus, check out this article on how to save a failing business, or discover these top business startup blogs to read every week.

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