Business PlanCompany Incorporation

What Is ‘Inc’ In a Company Name?

The article makes the readers understand the concept of company incorporation and the pros and cons associated with the concept.

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What Is ‘Inc’ in a Company Name?

Once you set up a business, the first step is to decide on the legal structure of your business. The business’s legal structure depends on your business type, how many investors are there, and how you deal with the tax and liability issues. So, you have to decide first the structure of your business so it can run without difficulties. 

Suppose you decide to set up your business as a corporation, then you can expect to get a lot of benefits. The major benefit is that the business receives a separate entity from the owner, which provides legal protection for the owners whenever things get wrong. Once your business turns into a corporation, then one of the following designations will get added after its name:

  • Inc.
  • Ltd.
  • Co.
  • LLC.

What Does Inc. Mean in a Business?

The full form of Inc. is ‘Incorporated’, and once your company gets the status of Inc, the brand gets a separate legal identity. It ensures that your company’s share will be available in the market. The most important and lucrative benefit of being incorporated is that the member’s liability gets reduced significantly, especially when the company faces legal litigation or goes into a default mode of operation. Therefore, the company is solely responsible for settling any debts, paying taxes without missing the deadline, and selling the stock to raise funds for the company whenever the need arises.

There is another advantage of getting incorporated. Suppose the company owner dies suddenly; the company does not perish, which means it continues to operate. 

To set up the incorporation, you must file an application addressing the state secretary of the state where your company administrative office is located. Though the formation of an Inc. provides significant benefits to the owner, it is a complicated legal process to manage and run. That is why small business enterprises are not recommended to become Inc. until or unless they significantly grow in size and manpower deployment. Once the business is recognised as a corporation, it is mandatory to add a designation after the company‘s name under most state laws. For e.g., Inc. 

Significance of Incorporation: Tax Benefit with Liability Protection

Corporations provide their shareholders with a legal shield by considering them a separate legal entity. So, the shareholders or the owner set personal asset protection. In other words, this personal asset protection can be regarded as the reason behind getting incorporated. 

Business people, who do not incorporate themselves, often have to face the threat of losing personal liability whenever the companies go into default. Creditors or financers often come after you in such a situation to realise your debt by croaking your personal property or asset. 

Shareholders or owners of corporations can run their business without the fear of losing personal property like Savings, Vehicles, Houses, Gems & Jewelries and other valuable assets. 

INCORPORATE TODAY WITH NO RUSH!!

Once the business gets incorporated, it creates a bubble shield around its shareholders (owners) and directors. In corporate language, this bubble is often referred to as the ‘Corporation Veil’. Therefore, the corporations can continue to take risks for the growth and development without exposing their directors’ and owners’ personal assets at risk beyond their original investment utilised in company formation. 

Corporations have a completely different tax structure. Wealthy taxpayers have to pay more taxes than some corporations where tax is calculated at a lower corporate rate. It indicates that paying tax at the corporate rate is often cost-effective. Corporations enjoy a range of tax deductions. 

The List where Corporations generally enjoy a Tax Deduction:

  • Employee remunerations. 
  • Raw material costs.
  • Production costs.
  • Insurance premiums.
  • Retirement plan cost.
  • Business travel expenditures.
  • Entertainment levy.

Dependability and Proprietorship Advantages

Corporations have better dependability than any other type of business. The creditors, suppliers, customers, facility owners and other statutory authorities usually support your choice to incorporate as it brings a serious long-term relationship. The stakeholders get a feeling of stability, well performance and dependability from the designation ‘Inc.’

Corporate shareholders can easily transfer their shares to other shareholders, friends or family members whenever a need arises. They can even transfer it to their fellow shareholders. This ease of transferring ownership helps in an everlasting existence of a corporation. The perpetual existence of a corporation never gets impacted by the death of any shareholder or withdrawal. In an unincorporated business, the death or withdrawal of an owner often creates a major hindrance in operation or can bring an abrupt ending to the business itself. So, it is always better to incorporate your business to ensure a continued existence in the business world. 

Different types of Inc

Typically, there are four types of corporations:

  1. S Corporations.
  2. C Corporations.
  3. Non-Profit Corporations.
  4. LLCs.

S Corporations: S Corp prioritises passing through any finance-related issues, including profit and losses, tax deduction, and credits. S Corp holds its shareholders responsible for any profit or loss generated by the corporations. S Corp pays an exact amount of corporate taxes on residual income and gains outside the shareholder’s hold. This helps S Corp avoid the probability of getting taxed. 

C Corporations: A C-Corp is similar to S Corp, which can be considered a partnership, corporation or LLC. A-C Corp is also eligible for certain tax benefits like S Corp. Here the company’s profit is taxed independently of the profits earned by the shareholders. C Corp can have any number of shareholders who can also be considered the company’s employees. A ‘C Corp’ needs a well-defined board of directors who act as the company’s decision-makers, whereas the shareholders act as the major financial support. 

C Corp often faces the challenge of double taxation. To be more precise, the company has to file the corporate tax over the profit earned in a financial year. Again, the shareholders have to file individual income tax returns on the amount of profit earned by them in that particular financial year itself. 

Non-Profit Corp: It follows any traditional corporation structure. It has a board of directors, along with financial backers. But as the name suggests, it does not profit from its business. It generally works in creating some public welfare, supporting medical aid to the needy people, and helping to provide educational support to the backward part of the society. Non-Profit Corp has some tax exemption facilities and gets funding from a wide source. 

LLC: Limited Liability Company is similar to S Corp and C Corp., where the main motive of the corporation is to protect the personal asset of the shareholders against any default or financial damages. It offers its owners some additional benefits, including easier financial structure than other corporations, taxation at a personal level and the power to own multiple real estates under different LLCs to control taxation. 

Conclusion: 

Take your time, and brainstorm to decide on a suitable business model for your startup. Your needs keep on changing over time as your business grows. If you feel you made the wrong choice, you can restructure your business at any time. 

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