Starting a Business: Corporations
There are four basic forms of business organizations available: limited liability companies (LLCs), partnerships, sole proprietorships, and corporations. This post deals with limited liability companies (LLCs).
The proper choice of the form of business operation will affect your business for a long time. Obtaining my assistance or the assistance of another attorney who is knowledgeable in this practice area is critical to your success.
Here is some information about LLCs, as well as a couple of the considerations when selecting which form of business operation is best for you.
What is a Corporation?
A corporation is a separate legal entity from its shareholders. A corporation comes into existence when an incorporator files Articles of Incorporation with the state and pays a fee to organize the company. In addition, other documents are required to be prepared which are not required of any other entity form, such as bylaws.
The shareholders receive stock in the company in exchange for money, property, or services. The shareholders elect a board of directors who manage the business affairs of the company. The board of directors elects officers to carry out the day to day operations of the company.
The officers and directors do not have to be the same people nor do they have to be shareholders. Because it is a separate entity from its shareholders (the owners), its officers, and its directors, there are more formalities to organizing a corporation than any other form of business operations.
What are the different types of corporations?
There are two types of corporations which both take their names from the income tax code that regulates them: a “C” corporation and an “S” corporation.
A C corporation pays its own tax and distributes dividends to its shareholders who pay taxes on the dividends it receives: hence a double taxation scheme.
An S corporation passes the income and expenses through to its shareholders similar to a partnership.
If either type of corporation has employees, it must withhold income taxes from its employees’ wages and pay and file all of the required employer taxes.