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A corporation is a legal
business entity which has its own privileges and
liabilities separate from those of its members.
There are different forms of corporations.
General Corporation: A general corporation is one of the most common
corporate structures used in America today. It
is a separate form of entity owned by the owners
and/or stockholders of the company.
A general corporation can have one or
more owners who are protected from
creditors of the business.
Personal assets belonging to owners of
the corporation are also protected from
business debts. And under normal
circumstances, personal liability is
limited to the amount of investment in
the company made by the owners. |
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Although there may be many benefits from forming
a corporation, doing so can sometimes become
complicated as well. Furthermore, it is much
more expensive to form a corporation than it is
to form a sole proprietorship or a partnership.
But if you’re going to have more than one
employee in your business, then forming a
corporation may be the right move for you.
NOTE: You do not need an
attorney to form your corporation. You can do it
yourself for free by simply filling out the
forms and sending in the correct filing fees.
However, you can also hire business service
providers to set up your corporation for you.
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S Corporation
An S corporation (S-Corp) is a corporation
entity that is taxed under the Subchapter S of
Chapter 1 of the Internal Revenue Code.
Yet in general, S corporations do not pay any
federal income tax. Instead, income and/or
losses are divided among its owners. This
process is known as single taxation.
Members must then report that income or loss on
their own individual tax returns. But if the
corporation is taxed as a C corporation then it
will be taxed with a double taxation.
However, an S Corporation combines some of the
benefits of a sole proprietorship and a
partnership as well. And tax rates for an S
Corporation are lower compared to that of a C
corporation.
To file and register your corporation as an
S-Corp you’ll need to request a Form 2553 S-Corp
election form from the Department of
Corporations for your state. Fill it out and
send it in along with the correct filing fees.
When starting a simple internet business from
home, it is not necessary to incorporate,
especially when there’s just one owner and
operator. But if you’re going to incorporate
then you may be better of incorporating as an
S-Corp rather than a C-Corp structure.
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C Corporation
A C Corporation (C-Corp) is a corporation entity
that is taxed separately from its owners. And
most major companies in America are formed as C
corporations.
Furthermore, there is no liability for partners
or shareholders within a C-Corp. Instead, the C
Corp itself becomes responsible for the debts
and liability of the business. And when it comes
to taxation, tax rates are based upon profits.
In other words, the more you earn, then the more
you pay in taxes.
For example, a C-Corp earning $50,000 per year
is taxed at a rate of 15%. However, a C-Corp
earning $10 million per year net profit is taxed
at a higher rate of 35%.
Furthermore, not only does
the C-Corp pay taxes, but the owners and
partners of the C-Corp must pay taxes on their
personal earnings from the business as well.
This is what is known as double taxation.
However, if you are the owner of the business
then you can reduce the amount of the earnings
which you receive from the business as your pay
and therefore pay lower income taxes.
To form your corporation as a C-Corp, you’ll
need to file your articles of incorporation with
the Department of Corporations for your state.
A Form 1120 U.S. Corporation Income Tax Return
and a Form 1120-a U.S. Corporation Short-Form
Income Tax Return will have to be filed for
personal income tax and business taxes as well.
Is it necessary to set up your business as a
corporation?
No - not if you’re the sole owner and operator
of the business, and there are no other partners
involved.
However, if you’re going to start your business
with partners or plan on adding employees, then
setting up your business as a corporation may be
the best way to go. |
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Next-> |
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Partnerships Explained |
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>
Limited Liability Companies Explained |
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How to Obtain Your Sales Tax License |
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The
Best Selling Products Online (Intro) |
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