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A corporation is a legal entity created through the process of incorporation for the purpose of operating for profit. A corporation is considered separate from its owners (referred to as “shareholders”).
There are two types of corporations: S Corp and C Corp.
A C Corp. is the most commonly filed corporation. In this particular structure, the owners of the corporation receive profits from the company and are taxed both at the individual level and at the entity level for the same earnings.
An S Corp.’s main attribute is that this type of corporation enjoys pass-through taxation. This means that the owners only pay taxes at the individual level, rather than twice.
Forming a corporation is a popular choice among certain business owners, due to the many benefits of using this type of entity.
Since corporations are completely separate from the owners, the entity itself can conduct business, buy property, execute contracts, and conduct financial transactions independently.
Corporations also have limited liability protection. The owners of corporations are only liable to creditors and lenders for the amount they individually invested.
The structure of a corporation lends itself to crowdsourcing funds for selling stocks and issuing bonds. Corporations can easily raise capital through the sale of stock, which can also be a benefit in attracting employees.
The fees for incorporation are usually more expensive than those required to form a partnership or LLC. Corporations are also required to adhere to more formalities than other types of entities. To some business owners, these requirements are seen as burdensome and unnecessary, especially if they are the sole owner.
As mentioned above, one of the biggest disadvantages of forming a corporation is what is known as “double taxation.”
Corporations are allowed to have one sole owner. One person may serve as shareholder, director, and officer for the corporation. Although corporate formalities must be complied with no matter the number of owners, it is especially important to document your activities as a single-owner corporation. This means you will need to hold meetings and draft minutes of those meetings, even if you are the only participant.
If you are interested in forming a corporation, contact our office today to schedule a consultation. Our business law attorneys can help you determine if a corporation is the best structure for you and explore all other options available.