| Business and Corporate Law |
| Incorporation - Different Types |
| Limited Liability Company |
| The Best Structure For Your Business |
| Business Forms |
| Shareholders Agreements |
Incorporation - Different types
Businesses in the United States are usually organized as corporations, incorporated under the incorporation laws of one of the states. Corporations are complex legal entities, separate and distinct from the owners. Many of their legal rights are those normally associated with human persons. Incorporation itself may follow different types. It is essential for you to obtain legal advice if you are considering incorporation of your business.
C Corporation
This is the standard incorporated business. The great advantage of doing business as a C corporation (or regular corporation) is limited liability. If the corporation should fail, stockholders may lose their investment in the corporation but they would not be personally responsible for any unpaid debts or obligations incurred by the corporation. Their liability is limited to the amount of their equity investment.
The great disadvantage is double taxation. The corporation is subject to various forms of taxation, especially corporate income tax on profits. But when it distributes after-tax profits to stockholders as dividends, these are considered income to the stockholder and thus subject to personal income tax.
S Corporation
Corporations with certain characteristics are allowed to make an election to be taxed under Subchapter S (thus S corporation) of the Internal Revenue Code. The subchapter was designed primarily to promote small businesses, and a corporation may qualify for it if there are only 75 or fewer individual American stockholders. Electing to be an S corporation allows it to be taxed as if it were a partnership — that is, there is no corporate income tax on profits. Each stockholder is obliged to report his/her proportionate share of corporate income or loss on his/her personal income tax return, and taxation occurs only at this point.
Limited Liability Company (LLC)
LLCs are hybrid entities. For tax purposes, the LLC is generally treated as a partnership, thus eliminating the double taxation that occurs in a regular corporation. For liability purposes, the LLC is treated in most cases like a corporation, with provisions for limited liability to its members including those involved in management. Typically, the members of the LLC are required to enter into a shareholder agreement, containing specific information about its operations, such as the management parameters, the capital contribution of members, and the allocation of income and loss. There is no limit on the number of stockholders in the LLC.