| Deciding what kind of business entity makes the most | | | | include maintenance of separate corporate finances, |
| sense for you depends on the type of business, | | | | official corporate meetings and minutes from those |
| various tax and liability issues, and the wishes and | | | | meetings and periodic governmental filings. Though |
| plans of the owners. The main choices to consider are | | | | these formalities may be time-consuming at first, they |
| the sole proprietorship, a general or limited partnership, | | | | are required to keep a corporation's liability protection |
| a limited liability company (LLC), or a corporation (inc.). | | | | intact for its investors. |
| A corporation is a legal entity formed and regulated | | | | Limited Liability: One of the key advantages of a |
| under state and federal corporate laws. Each | | | | corporation is the liability protection it provides its board |
| corporation must have a board of directors, | | | | of directors and officers. However, that liability |
| shareholders who own stock in the corporation, and | | | | protection can be breached if the corporation is not run |
| officers of the corporation who run the day-to-day | | | | properly. Lawsuits that successfully reach the |
| affairs of the business. | | | | individuals behind a corporation are called "piercing the |
| Corporations make a lot sense for companies which | | | | corporate veil." |
| are poised to grow and attract investors. Also, | | | | Taxes: There are two types of corporations when it |
| because a corporation has strict paperwork | | | | comes to taxation: a C-Corporation and an |
| requirements, the business is usually easier to sell than | | | | S-Corporation. A C-Corporation is the traditional |
| other types of businesses because it's easier for an | | | | corporation and is subject to double taxation: the |
| outside buyer to determine exactly what is occurring | | | | corporation pays corporate tax on its profits, and then |
| within the business. If you have visions of becoming a | | | | the individual shareholders pay personal income tax on |
| publicly-traded company, a corporation structure is | | | | any dividends that are distributed to them from those |
| required. | | | | same profits. An S-Corporation, on the other hand, |
| Characteristics of the corporate structure include: | | | | does not pay corporate tax, but instead passes all |
| Perpetual Existence: Corporations are designed to last | | | | business income through to the individual shareholders |
| forever. They are not dependent on the death of a | | | | to be reported as individual income and taxed |
| single owner, but can be sold or dissolved by voluntary | | | | accordingly. |
| action of the board of directors. | | | | While an S-Corporation can often be advantageous, |
| Control and Management: A corporation is managed | | | | there are certain rules that must be followed in order |
| by a board of directors, who are elected by the | | | | to qualify. 1) The election to become an S-Corporation |
| shareholders. The board of directors, in turn, select the | | | | must be filed with the IRS within the first 75 days of |
| officers who handle the day-to-day business under the | | | | operation of the company. This is accomplished by |
| guidance of the board of directors. Though there is no | | | | filing IRS Form 2553. An S-Corporation can have a |
| statutory minimum for the number of directors, it is | | | | maximum of 75 shareholders and can have only one |
| almost impossible to run a business with less than | | | | type of stock. Also, shares of an S-Corporation cannot |
| three (3) directors because most decisions need to be | | | | be held in a trust or be owned by individuals in another |
| made by a majority. | | | | state. Also, shares cannot be owned by another |
| Shareholder Rights: Shareholders have rights in a | | | | corporation. In other words, it cannot be a subsidiary |
| corporation, including the right to vote for the board of | | | | corporation. |
| directors, the right to share in profit distributions, and the | | | | Setting up a corporation is not complicated. There are |
| right to access financial and business records of the | | | | standard forms to be filed with the Secretary of State, |
| corporation. | | | | along with your Articles of Incorporation. Bylaws of the |
| Stock: Shareholders receive stock in the corporation in | | | | corporation must be written and approved by the |
| exchange for their investment in the company. | | | | board of directors, stock certificates created, and the |
| Depending on the bylaws of the corporation, there | | | | various corporate formalities established. |
| may be various types of stock available, typically | | | | Before creating any type of business entity, it's a good |
| common stock and preferred stock. Issuing stock | | | | idea to discuss the advantages and disadvantages of |
| requires approval of the board of directors and must | | | | each type of business with an attorney, an accountant, |
| follow many federal and state securities laws. | | | | or other trusted business advisor. No one solution is |
| Corporate Formalities: Corporations must be observed | | | | right for every situation, so get the facts before you |
| to maintain the liability limitations that protect the | | | | decide. |
| individuals who own the corporation. These formalities | | | | |