What is the difference between INC and LLC and which one is better ?

A limited liability company is a type of business structure that offers personal liability protections and a few tax advantages to boot. The "LL" in LLC is what protects your personal assets in the event of a judgment against your company. Corporations offer limited liability as well, so we're going to focus on the structural and taxation differences in the chart below.

Corporation:

Despite the ease of administration of an LLC, there are significant advantages to using a corporate legal structure. Two types of corporations can be formed. An S corporation is a passthrough entity for tax purposes. A C corporation is taxed at the corporate level and files a corporate tax return.

Corporations offer more flexibility when it comes to their excess profits. Whereas all income in an LLC flows through to the members, an S corporation can pay its employees a reasonable salary while deducting expenses such as federal taxes. The remaining profits can be distributed as dividends from the corporation. As of 2015, dividends have a lower tax rate when compared to gross income. C corporations have the advantage of allowing profits to remain with the corporation. Thus, the dividends paid from the corporation can be structured to take advantage of the best tax scenario for the shareholders. Also, for businesses that eventually seek to issue stock, the corporation can easily issue shares, while an LLC cannot issue shares.

LLC:

The IRS does not treat LLCs as a distinct entity for tax purposes by default, which offers greater flexibility. An LLC with a single member can be taxed and treated like a sole proprietorship. Thus, profits and losses are taxed on the individual’s personal federal tax return.

There are two options for an LLC with more than one member. The first option is to treat the members as partners. The members are taxed the same as the partners in a partnership. The other option is to tax the LLC as a corporation.

One potential drawback to using an LLC is that members may have to pay self-employment taxes on their profits and any salaries. For an LLC, the profits flow through to the members who deal with them on their federal tax returns. For a corporation, profits are taxed at the corporate level. The individual members usually have to pay for federal items such as Medicare and Social Security. There are other drawbacks as well. There can be an automatic termination of an LLC that is treated like a partnership for federal tax purposes. The automatic termination is triggered if there is a sale or exchange of 50% or more of an LLC’s total interest within a 12- month period. This is called a technical termination. When this occurs, the assets are considered to have been contributed tax-free to a new LLC. The membership interests in the new LLC are then treated as having been distributed to the members of the old LLC. Also, there must be at least two members for an LLC to be treated as a partnership for tax purposes. In contrast, there can be a C corporation or S corporation, which only has one shareholder.

Another major disadvantage is the differences among states in the statutes that govern LLCs. This can lead to uncertainty for LLCs that operate in multiple states. The differences in rules and regulations can result in additional paperwork and inconsistent treatment across different jurisdictions.