Always seek out information pertaining to your jurisdiction before you make a decision.
The corporate structure is a great way to shield the owners from liability, but it also requires a lot of paperwork compared to a sole proprietorship or partnership – both to create and to maintain.
The corporation is an independent legal entity that exists separate from its owners. The debts of the corporation is not pushed on to the owners, and your own personal assets can not be taken to pay for liabilities incurred by the corporation.
Doing the taxes for a corporation can be a bit more complicated, but there are also advantages. For instance, a corporation can retain its profits instead of sending the money on to the owners. Therefore, money can be retained within the company – to save up for future investments and to avoid creating a tax liability.
The company stock consists of shares, and each owner of a share is a co-owner of the corporation.
Several types of shares can be created, e.g. shares that come with certain advantages over common stock shares.
Selling shares is a common way for corporations to raise money, and is an alternative to borrowing money when investments need to be made and there isn’t sufficient money saved up within the corporation to do them.
Corporations have strict rules that they must follow and quite a lot of paper work is involved. Each jurisdiction has their own laws and regulations.
It is very common for corporations to hire an accountant to do their taxes and certain other required administrative work. In some jurisdictions, having an approved accountant do certain tasks is even a legal requirment.
- The corporation is subject to corporate income tax. In the United State, there is corporate income tax at both federal and state levels.
- Money distributed from the corporation to the owners (shareholders) in the form of dividends must be included in the recipient’s personal income tax return and is taxed on that level too.
This means that money can be taxed twice; first at the corporate level and then at the individual level.
Process of incorporation
In the United States, contact the Secretary of State in your state to find out more about how to incorporate in that state.
It is possible to file for incorporation without hiring an attorney or similar.
Examples of documents that must be created for the incorporation process in the United States:
- Articles of IncorporationMany states have a special form for this, to make sure you remember to enter all the required information, such as corporation name and corporation purpose.
- BylawsThe bylaws describe how the corporation will run. It includes information such as when stockholder meetings will be held and the responsibilities of shareholders, directors, and officers, respectively.