These seemingly similar terms have some key differences and understanding them is useful knowledge for all small business owners.
Corp. vs. Inc.: The Essential Information
When you abbreviate the word “incorporation,” you are left with Inc. When you abbreviate the word “corporation,” you are left with corp.
Simple enough, right? We see these abbreviated terms used in business names every day, but rarely do we think about what the terms concretely mean or what these terms imply. When a business entity is incorporated, it is possible to use either of these abbreviated words. Let’s take a closer look to find out when, why, and how you can and will utilize not only these words but these key concepts used in contrast between Corp. vs. Inc.
Brad Nakase, Attorney
The Specific Differences Between Inc. and Corp.
If you are reading this, you are curious about the differences between Inc. and Corp. You are also probably in the process of registering your new business or are at least beginning to contemplate this process. As you prepare, this knowledge should be helpful as you further figure out the differences between Corp. and Inc.
You are able to choose “Corp.” or “Inc.” when registering your entity. In terms of compliance obligations, limited liability, your proposed tax structure, and your legal structure, there are no differences when comparing Corp. and Inc.
There are a few important things to remember, though, when naming your company:
- Both abbreviations cannot be used simultaneously.
- You must choose either inc. or corp.; they cannot be swapped.
- Remember that after you have registered your business, you are committed to using this term whenever you fill out paperwork.
Why are these two terms the most important for small businesses?
Read on for more key differences between Inc. and Corp. and why this is important to you as a business owner.
What Inc. and Corp. signify is that the business entity has been recognized as a separate and legal institution. This is known as a charter, and your company’s charter brings with it a set of liabilities and privileges. The important piece here is that the liabilities and privileges are completely separate from the business owner. In this way, the Inc. or Corp. is both a symbol and a signal.
Both Inc. and Corp. imply limited liability for the small business. What does this actually mean? It simply tells us that the business owners, directors, employees, shareholders, plus anyone else associated with the business will not be liable personally for debts that belong to the business institution. It is an important feature of both.
Finally, a business entity or small company is “founded” when the company is incorporated with California or the state in which the company resides. Whether your company is a Corp. or an Inc. at this point, it does not matter: the company is created in the same manner. Let’s move on and look at more differences between the concept of Inc. and that of Corp.
More Key Differences Between Inc. and Corp.
The term “incorporation” refers to the manner through which a company is incorporated.
A corporation consists of a lawful structure, thereby considered a business entity, that is recognized to be separate from all of the involved individuals.
As we’ve stated, you will need to use Inc. or Corp. in your business name, and this will show everyone: other small business owners, prospective customers, and even your employees, that you have incorporated your new business.
Commonly Asked Questions About Inc. and Corp.
Let’s hope some of these commonly asked questions help you to understand the differences between Inc. and Corp. more fully.
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What are the advantages of forming a corporation?
Once you have established your entity, you will be able to own property using the company name. You will also be able to conduct business, deal with lawsuits, and if needed, file lawsuits against other companies and individuals.
Your business will also be afforded some legal protections when it becomes incorporated with the state of California. Normally, these legal incentives are given to the business owners and make it simpler to obtain funding from various sources.
When you incorporate, you will also now possess what are called “shares.” These percentages are simply ownership interests and can be inherited, as well as given and sold. Corporations are theoretically able to live on forever, even after their owners have moved on.
Now, shareholder liability in terms of their personal business interests and obligations is another story. This liability is based on the amount the shareholder has invested into the company, and therefore the amount is limited by that factor. Unless a lender or seller requests personal assets, these assets are not risked. Why would they be requested? Sometimes a seller will want a guarantee that the current debts will be paid.
Who enforces these rules and makes sure that everyone is on the same page? Your company will have a board upon which serve directors. This board is tasked with the management of the corporation. A key element of this is that the shareholders of your institution will select the directors who make up the board.
In exchange for running and operating the company, officers and directors of your business can buy shares as well as ownership interests.
If a lawsuit does occur, the process of incorporation becomes more valuable. Companies that are incorporated have reduced liability among the individuals who are involved.
Corporations, lawful and separate entities, are liable for their own debts and taxes. They are also able to sell stocks in order to make profits. They also pay taxes for the complete sum of their earnings. This is a crucial difference between Inc. and Corp.
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What else is important to know about incorporation?
In order to incorporate, you will need to follow the laws of your state, in this case, California.
It is also true that corporations are complex entities and can be costly to maintain and run. It is advisable that very small companies do not incorporate until they have the size and numbers to deal with the inherent tasks and costs.
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So, what does this all have to do with Inc. vs. Corp.?
Your corporation will have a name, something that signifies who you are as an entity and what you will seek to do. Included in that name will be what is known as “corporate designation,” and this means that Inc. or Corp. will be a part of your name.
Here is a real-life example: Microsoft became Microsoft Corp. when it was incorporated.
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How do I incorporate a business entity?
You will file the correct documents with the state of California and the Secretary of State. This is known as a business “charter” or the Certificate of Incorporation.
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What information will I need to incorporate?
- The corporation’s name is unique, original, and different. Set yourself apart and use your name to show prospective customers and even investors what it is you do!
- Physical address of your main office
- The corporation’s lifespan
- A brief description of your company’s prospective actions
We hope you now understand the key differences between Corp. and Inc. After you file with the state of California, your new corporation has been “born” or created—congratulations! Remember, if you are not ready to open up when you file with the state, you can choose a different date for your company to become legally recognized.
If you require additional guidance concerning Corp. vs. Inc. and the differences between Corp. and Inc., please contact our California Business Lawyers & Corporate Lawyers at Nakase Wade. We hope this was helpful and wish you great luck on your business journey.