When you set out to create a business, you first need to decide what kind of legal structure your company is going to have.
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.
What does inc. mean in business? It means you've checked all the boxes and set your company up for success with a solid legal basis.
