A corporation's owners are protected from its liabilities. Owners draw a salary and pay taxes at the personal income tax rate. Money left in the corporations is taxed at the lower corporate tax rate. Business owners can use their corporation to defer taxes and plan for retirement by limiting the amount of salary they draw, says Mitchell Stein, an expert on corporate governance and organization at the Richard Ivey School of Business at the University of Western Ontario in London.
Corporations general involve extra costs for legal and account fees, so owners should ensure they will save enough on taxes to cover those costs before they incorporate. Incorporated businesses usually carry the designation Inc. There are actually no distinctions between them, Ms. Brophy says; which designation to choose is up to the corporation's owners.
Follow us on Twitter: globesmallbiz Opens in a new window. Report an error. Editorial code of conduct. Skip to main content. Special to The Globe and Mail. Because corporations cost more to administer and are legally complex, the U.
Small Business Administration recommends that small businesses not incorporate unless they become established as a large company. In most states, corporations must add a corporate designation, such as Inc. A limited company can be abbreviated to Ltd. This structure is used mostly in European countries and Canada. 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. The term is used interchangeable with Inc. Responsibility for company debt is usually limited to the amount a person has invested in the company. Companies that choose the Inc designation are assumed to be keen for limited liability processes. As far as the INC company is concerned, the stockholders, directors and officers, are not questionable for the debts, and other obligations, that the company holds.
These companies are not separate legal entities. Companies should be aware, that the regulations regarding an Inc or Ltd, will vary significantly between different countries, and within their jurisdictions. For example, some states in the US will only allow the formation of an Inc, and others will only allow a limited company. It is wise for a business owner to conduct thorough research on the rules and laws that apply to the country wherein he would like to begin his organization.
Unlike Ltd companies, Inc refers to a company that has no restrictions for members as far as their shares are concerned. Inc may have more business owners than the Ltd companies, that have a limited number of business owners.
As far as the Inc company is concerned, the stockholders, directors and officers are not questionable for the debts and other obligations of the company. Ltd companies do not have these same rules. Cite APA 7 , C. Difference Between Inc and Ltd. Difference Between Similar Terms and Objects. MLA 8 , Colleeen. I want to commend the author for the effort to write dow this article. Many people choose to form their small business as an LLC simply because it provides an extra layer of legal protection as far as protecting your personal assets go.
This formation separates personal and company funds so that in the event of the company getting sued, only the funds from the business are up for grabs. This is also an attractive formation because it is very flexible. A business of this type is owned by members and operated by either third-party managers or the members themselves. It's a very popular formation, and it is said that about 75 percent of small businesses are formed under an LLC.
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