What is a corporation?
Corporation is a legal form of organization of people and material resources, chartered by the State, for the purpose of conducting business. Corporation is owned by shareholders, the Board regulates the business, and elected officials manage day-to-day activities. Corporation must comply with the corporate tax laws and introduce corporate taxes regularly. A
Corporation, also known as Standard Corporation, C-Corporation, or regular corporation can have an unlimited number of shareholders, including foreign nationals, may be public (where shares for sale to the public offer) or private ( when the shares are not sold to the public). Usually, the company shares are held by the founders, board members and private investors such as venture capitalists, who may or may not sit on the board.
C-Corporation is the most common type of incorporation. C-Corporation is considered to be a profit-making company established by the state. Registration is done with state authorities and must abide by the corporate laws in the state in which it is incorporated.
Corporation provides protection to shareholders of the liabilities of the corporation, hence the term "limited liability". However, C-Corporations also has what is called "double taxation" – first the corporation pays taxes on its profits, and then shareholders pay taxes on the distributions they receive, such as profit-sharing payments or dividends. Add
you must register your business name, a certificate of incorporation or bylaws, and pay a fee. You also need to draft bylaws and maintain a table of director's meeting.
Why should I incorporate?
Incorporation is one of the best ways to protect your personal assets to do business. Most people choose to incorporate only for this reason, but not the only advantage of incorporation.
For example, owning a business can save money on taxes, allowing greater business flexibility, reduce your chances of being audited, provides tools for better detail, and makes raising capital less complicated. Advantages of incorporating
Limited Liability: A corporation is a legal entity that exists separately from its owners or shareholders. With some exceptions, shareholders are not liable for the debts and obligations of the corporation or of any litigation in which the corporation is the defendant. Some insurance may still be necessary, but the addition contributes an additional layer of protection (also called "corporate veil") Tax savings
:. Careful planning of your business expenses can result in lower overall rates of tax. There are many tax benefits to businesses under incorporation, depending on their business income. Even if your business becomes profitable young pretty soon, a company is entitled to many other deductions not available to you so, resulting in significant tax savings. An example of such would be tax deductible expense salaries of its employees and yourself
Reduces the risk of IRS Examination (Audit) :. Unincorporated businesses, particularly higher levels of gross income, are the objectives of many IRS audits. Incorporated businesses have a much lower rate audit, even if they have high levels of income
Anonymity :. Depending on the state where you decide to incorporate, a corporation can be established so that shareholders / owners remain anonymous. Often the same level of anonymity can be provided for officers and directors
Credibility Added :. A corporate structure communicates permanence and credibility. Even if it is a company with a single shareholder and employee
Easy access to capital financing: .. With a corporation that is much easier to attract investors through the sale of shares
Easier transfer of ownership: The ownership of a company may be transferred without substantial disruption of operations through the sale of shares. Thus the need for complex legal documentation
Ownership Flexibility is reduced :. Owning shares gives you the flexibility, among other things, to make effective use of their business, or to retain key employees. To further leverage the business successful C-Corporation can be taken public, in a process called initial public offering (IPO). You can also issue shares or options to its "binding" key employees to the company and thus retain (common in the high-tech industry, among others) Longevity
:. The plate carries the corporation, not the owner. That means a corporation training can last more than an owner based company as an LLC.
Main disadvantages of the C-Corp.
C-Corporations have certain disadvantages. The main disadvantage is the fact that the benefit of a C-Corporation is taxed to the corporation when earned, and the corporation does not receive a tax deduction when dividends are distributed to shareholders. Then when dividends are distributed to shareholders are taxed again at the shareholder level. This phenomenon is called "double taxation".
Similarly, when C-Corporation has a loss, its shareholders can not deduct from their personal income.
C-Corp. Vs. S-Corp. Vs.
Other forms of business organization include incorporation of S-Corporation and LLC. Each of these types of entities have certain advantages and disadvantages in comparison with the common C-corporation, but a more detailed comparison between those entities is beyond the scope of this article.