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The Corporation
A corporation is a legal entity that separates ownership from the business owners (also known as the stockholders or shareholders). Each state has its own law regarding the formation of corporations, but many follow the Model Business Corporation Act. Each state also has law that foreign corporations must follow in order to do business in that state.

The primary benefit of a corporation is that its owners are maximally protected from taking on the debts or other liabilities of the corporation. Creditors are generally unable to touch the personal assets of shareholders.

There are basically two types of corporations, the C-Corporation and the S-Corporation. The difference between the two corporations is in taxation. The C-Corporation is subject to two levels of taxation. The corporation itself pays taxes, and then the stockholders personally pay taxes on the income that is passed on to them by the corporation. In an S-Corporation, the corporate income is passed directly to the stockholders.

Advantages of a Corporation:
  • [Owners are not liable for the debts or liabilities of the corporation.]
  • [Corporate profits are not subject to social security and Medicare taxes.]
  • [The corporation does not end with the death of a shareholder.]
Disadvantages of a Corporation:
  • [Corporations take work and expense to form and maintain.]
  • [C-Corporations (as opposed to S-Corporations) are subject to double taxation. This is where corporate profits and stock dividends are both taxed. In an S Corporation, profits are passed down directly to the owner(s). An S Corporation then does not pay taxes on a corporate level. The profits are only taxed once at the owner level.]
  • [C-Corporations (as opposed to S-Corporations and LLCs) are unable to deduct operating losses.]
  • [Corporations can be subject to unemployment insurance tax.Partnerships permit ownership by more than one person.Partnership losses can be used to reduce the taxable income of a partner.]

The corporation business structure is a popular, but can be complicated. If it is not properly formed, the shareholders may lose some of the entity protection and may personally assume corporate liability. To ensure the proper formation and smooth operation, it is wise to work with an attorney in getting your business off the ground.


Contact us at 877-479-7970, or e-mail us at info@law-thomas.com, to arrange for a confidential complimentary family law consultation.
FAQ's
Q: What is the difference between a C Corporation and an S Corporation?
A: All corporations begin their lives as a C corporation. The owners can elect to become an S corporation by filing a form 2553. This new status allows the owners to be taxed like a partnership or a sole proprietorship. The income of the corporation "passes through" to the owners without the corporation being taxed. The S corporation does come with additional limitations, though, namely a shareholder limit of 100 and U.S. residency requirement for shareholders.

Q: What is "piercing the corporate veil"?
A: In some cases, courts have allowed plaintiffs to pursue the owners' assets of the corporation to satisfy a judgment against the corporation. This defeats the liability protection that owners typically have with the corporation. It is only in the most severe cases that courts allow plaintiffs to pierce the corporate veil. Some instances may include: fraud, intermingling of owner and corporate funds, improper formation, and practices to the point where the corporation can no longer be viewed as a separate entity. This is also known as "alter ego liability."

Q: What is a "registered agent"?
A: A registered agent provides a local address for the receipt of service of papers and for contact by the Secretary of State and other agencies. A corporation and LLC need registered agents because even though they are separate legal entities, they cannot receive paperwork, so they need someone to receive information on their behalf.

Q: Do I need permission to conduct business in another state when I am already incorporated in my own state?
A: Yes. A foreign corporation wishing to do business in another state must qualify to do so. Information on the process may be obtained from the Secretary of State in the state that the company is going into.

Q: Is there a benefit to incorporating in Nevada or Delaware?
A: Generally, no. There used to be significant benefit to incorporating in Delaware or Nevada, but with the changes in state laws those reasons no longer exist.

Q: What is a non-profit corporation?
A: A non-profit corporation is a corporation that is carried out for a charitable, educational, religious, literary or scientific purpose. A non-profit corporation does not pay either state or federal taxes because the government deems the actions of th corporation to be for the betterment of society.

Resources
The Small Business Administration (SBA)
The Tools section of the Small Business Administration's Web site provides users with small business information.

Findlaw Business Structure
This web site provides information on the different legal structures for a business.

Megalaw.com
This site has links to state corporate statutes. It also provides an excellent list of links to corporate law and business organizational websites.

IRS Department of Treasury
This site has links to tax forms and formation for all entities and business types.