Co vs. Incorporated

Attribute	Co	Incorporated
Legal Structure	Informal business structure	Formal business structure
Liability	Owners have unlimited liability	Owners have limited liability
Taxation	Pass-through taxation	Corporate taxation
Ownership	Owned by partners or members	Owned by shareholders
Formation	Less formal and easier to establish	More formal and complex to establish

Introduction

When starting a business, one of the first decisions you'll need to make is what type of legal structure to use. Two common options are forming a company as a "Co" or as an "Incorporated" entity. Both have their own set of attributes and advantages, so it's important to understand the differences between the two before making a decision.

Definition

A company that uses "Co" in its name is typically a partnership or a limited liability company (LLC). This designation indicates that the business is a cooperative effort between two or more individuals. On the other hand, a company that is "Incorporated" is a separate legal entity from its owners. It is formed by filing articles of incorporation with the state and is governed by a board of directors.

Ownership Structure

One key difference between a Co and an Incorporated entity is the ownership structure. In a Co, ownership is typically shared among the partners or members of the LLC. This means that each owner has a say in the decision-making process and is entitled to a share of the profits. In contrast, an Incorporated entity is owned by shareholders who elect a board of directors to make decisions on their behalf.

Liability Protection

Another important factor to consider when choosing between a Co and an Incorporated entity is liability protection. In a Co, each partner or member is personally liable for the debts and obligations of the business. This means that if the business is sued or goes bankrupt, the owners' personal assets could be at risk. On the other hand, an Incorporated entity provides limited liability protection to its shareholders. This means that the owners' personal assets are generally protected from the debts and liabilities of the business.

Taxation

When it comes to taxation, there are differences between a Co and an Incorporated entity. In a Co, profits and losses are typically passed through to the owners and reported on their individual tax returns. This is known as pass-through taxation and can be advantageous for small businesses. In contrast, an Incorporated entity is subject to double taxation. The corporation pays taxes on its profits, and then shareholders pay taxes on any dividends they receive.

Regulatory Requirements

Both Co and Incorporated entities are subject to certain regulatory requirements, but the specifics can vary. For example, a Co may need to file a partnership agreement with the state, while an Incorporated entity must file articles of incorporation. Additionally, an Incorporated entity may be required to hold regular board meetings and keep detailed records of its financial transactions. These requirements can add complexity and administrative burden to the business.

Flexibility

One advantage of forming a Co is the flexibility it offers in terms of management and decision-making. Since ownership is typically shared among the partners or members, decisions can be made collectively and quickly. This can be beneficial for small businesses that value agility and adaptability. On the other hand, an Incorporated entity may have a more rigid management structure due to the requirement of a board of directors and shareholders' meetings.

Perception

Perception can also play a role in the decision to choose between a Co and an Incorporated entity. In some industries, being an Incorporated entity can lend credibility and professionalism to a business. This is because the process of incorporating involves more formalities and oversight, which can signal to customers and investors that the business is serious and stable. On the other hand, a Co may be perceived as more informal and less established, which could impact the business's ability to attract certain clients or partners.

Conclusion

In conclusion, both Co and Incorporated entities have their own set of attributes and advantages. The choice between the two will depend on factors such as ownership structure, liability protection, taxation, regulatory requirements, flexibility, and perception. It's important to carefully consider these factors and consult with legal and financial professionals before making a decision on which type of legal structure is best for your business.