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. 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.
- LLC. This abbreviation that means the company is a limited liability company. This type of company is owned by its members and it has pass-through tax liability, which means the company does not pay taxes on income, but the members do. Members are protected from liability, which lies with the company.
- Co. This option that simply states the business is a company, and it may not be incorporated.
What Does It Mean to Be Incorporated?
When a company is incorporated, it means that it has formally designated itself as a corporation under the laws of at least one state.
In other words, it has filed all the necessary legal documents with that state and is operating as a corporation in the eyes of the government and the IRS.
A company that is incorporated must follow all laws pertaining to corporations.
Steps to Incorporation
When a business decides to incorporate, it first must choose the state in which it will incorporate. Then the following steps are taken:
- Select a name and search to make sure that the name has not already been taken by another corporation in that state.
- Choose a type of corporation to be: an S corporation (which has pass-through tax liability so the corporation does not pay tax, but the shareholders do), a C corporation (which pays corporation taxes), or an LLC.
- Choose a board of directors.
- Decide what kind of shares it will be issued to stockholders. These can include ordinary, preferred, or shares with or without voting rights.
- Designate a registered agent within the state who can receive legal documents on behalf of the corporation.
- Files articles of incorporation with the state.
- Write bylaws or rules for how the company will conduct its business.
- Issue stock to shareholders.
Once those steps have been followed, a corporation is up and running and ready to do business.