What is Corporation
A Corporation is also referred to as a standard corporation. It is also called a C-Corporation or a Regular Corporation. A Corporation is a legal form of organization of persons and material resources, chartered by the state, for the purpose of conducting business and may have an unlimited number of shareholders, which may include shareholders who are foreign citizens. A Corporation may be public – one in which shares is offered for sale to the public or privately held – one in which shares is not sold to the public. Usually shares are held by the founders, by board members and by private investors, such as venture capitalists, who may or may not sit on the board of directors.
Shareholders are protected from the corporation’s liabilities. “Double taxation” frequently occurs, because the corporation is taxed on its profits, and shareholders are also taxed on the distributions they receive, such as profit sharing payments or dividends
The most common type of incorporation is the C Corporation, which is a for-profit, state-incorporated business. A company registration is done with state authorities and must abide by corporate laws in the state where it is incorporated.
To incorporate or register company, you will need to register your business name, file a certificate of incorporation or articles of incorporation and pay a fee. You will also need to draft corporate bylaws and hold a board of director’s meeting.
Types of Corporation
a) C-Corporation
b) S-Corporation
C-Corporation VS S-Corporation VS LLC
If you’re incorporating your small business you may have heard that you should “form corporation” or “C-Corporation.”
In a C-Corporation, the corporation pays income tax on profits of the corporation. If the corporation pays a dividend to the shareholders, this money is taxed again as income to the shareholders. It may not be as bad as it sounds, though. If you are working for your corporation you should be paid a salary. This salary is deducted from the income of the corporation before taxes, so it will only be taxed once. Depending on the business, salaries may use up most or all of the profit. As long as the salary is not unreasonably high, the IRS should not challenge it. Fringe benefits for employees such as health insurance may also be deducted by a C-Corporation, but not by an S-Corporation. For a profitable and growing company it may be better to be a C-Corporation. In a C-Corporation profits beyond salaries and other deductible expenses can be used by the company for growth rather than being distributed to the shareholders and creating taxable income for them.
An S-Corporation does not have the double level of taxation, corporate and individual, that a C-Corporation has. Instead, profits and losses are distributed among shareholders who report that income or loss on their own federal income taxes. This is the main advantage to electing S-Corporation status.
Source: http://www.infotaxsquare.com
