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INCORPORATE YOUR BUSINESS
   
C-CORP
S-CORP
The most common corporate formation is the C corporation, it is a separate legal entity owned by the shareholder(s). The shareholders cannot be held personally responsible for the debts of the corporation. The shareholders’ personal liability is typically limited only to the amount the shareholder invested in the company.

The shareholders of C corporations may experience double taxation, which means that corporate profits are taxed at both the entity and individual levels. Profits of the business are reported and taxed at the corporate level first and if the corporation distributes any portion of the remaining profits to the shareholders in the form of dividends, the shareholders must report the dividend as personal income and pay taxes on it at the individual level.

Advantages of a C corporation

• Shareholders are not personally responsible for the debts and liabilities of the C-Corp

• C corporations can have an unlimited number of shareholders

• Ownership of a C corp is transferable through the sale of stock

• The C corporation will continue after the death of the initial stockholders

• Capital can be raised by selling shares (stock)

• Customers perceive corporations as a more professional entity

• Audited less frequently than sole proprietorships

• The C corporation benefits from numerous tax-deductible business expenses

• When forming a C-Corp typically articles of incorporation or certificate of incorporation, must be filed with the a state agency along with filing fees



Another standard corporation using a special tax status with the Internal Revenue Service (IRS).

All formalities are identical to the C-Corp regarding how the it is structured and must be filed with the appropriate state agency and pay filing fees.

The reason small business owners choose to the S-Corp is the special tax benefits. It is possible to avoid the possibility of double taxation like the C-Corp. The S-Corp must still file a corporate income tax return however no tax is paid at the corporate level. Instead, the profits or losses of the corporation are “passed-through” to the shareholders and are reported on their individual tax returns.

The S-Corp must file with a state agency, usually "Corporation Commission" ("Articles of Incorporation" or "Certificate of Incorporation,") and pay the appropriate state filing fees. After the corporation is created and filed with the state agency, it required that Form 2553 is filed with IRS requesting the S corporation status. This process usually takes up to 60 days for IRS to finalize.

Advantages of an S Corporation

• The possibility of avoiding the double taxation on profits

• Shareholders usually avoid personal liability for the debts of the business

• Ownership is transferable through the sale of stock

• The S-corporation will continue after the death of the initial stockholders

• Capital can be raised by selling shares (stock)

• Customers perceive corporations as a more professional entity

• Audited less frequently than sole proprietorships

• The S corporation benefits from numerous tax-deductible business expenses


Rules that apply to S-Corp shareholders:

• Limited shareholder to 100 or less

• Shareholders cannot be non-resident aliens

• Shareholder may not be C corporations, other S corporations, limited liability companies (LLCs), partnerships or most trusts.