| Most small business owners understand the main | | | | pay taxes in addition to paying taxes on your own |
| benefits of creating a corporation online or filing the | | | | personal income derived from a salary. This exemption |
| articles of corporation online. However, there lies a | | | | can be very important especially to smaller businesses |
| distinction between the two types of corporation that | | | | who are not generating the types of profit that would |
| can be filed online. The typical type of corporation is | | | | justify investing large amounts back into the business. |
| called a "C" corporation, and has the most often | | | | So, why would anyone want a regular "C" |
| recognized trait of incurring double taxation. The | | | | corporation? Well, first of all not everyone can qualify |
| second type of corporation actually starts out as a "C" | | | | for the "S" corporation exemption status. The S |
| corporation, but by filing a special form with the IRS | | | | corporation also does not allow some of the fringe |
| your business will be able to qualify under the guidelines | | | | benefits that are most likely going to be important to |
| of an "S" Corporation. | | | | medium to large sized businesses. An S corporation |
| What are the differences? Well, first of all, both types | | | | will only quality if it has fewer than 75 shareholders |
| of corporation filings will have the same set of core | | | | (obviously it cannot be a publicly held company). |
| features that define a corporation. Those are basically | | | | Additionally, an S corporation will only be able to issue |
| the protection from liability and lawsuits, due to the | | | | one type of stock. For small businesses, this will not be |
| corporation's status as a separate entity from its | | | | an issue, since they will not have enough shareholders |
| investors. A shareholder in a corporation can never be | | | | to justify needing both common stock and preferred |
| held personally liable for the actions of a corporation | | | | stock designations. |
| unless there is outright fraud involved (think Enron). | | | | There are other small rules involving an S corporation, |
| Both types of corporation also allow for an easy | | | | one such rule being that all shareholders are US |
| transfer of ownership, and the all important designation | | | | citizens and cannot be corporations themselves. |
| of inc. after your company name to gain credibility as a | | | | However, for most small businesses (and some |
| business. | | | | medium sized businesses) it is a great option to avoid |
| While these traits are very similar, an "S" corporation | | | | heavy taxation. After filing your corporation papers |
| has the added benefit of allowing "pass-through | | | | online, most online legal document services will allow |
| income". Basically this means that your income only | | | | you to also request status as an S corporation if your |
| gets taxed once. The corporation does not have to | | | | business meets the requirements. |