Corporations – Should You Form One?
A corporation is a type of business entity that exists under law as a separate “person” from the shareholders who own it. Most corporations exist indefinitely. There are many reasons to operate a business as a corporation. Factors include tax savings, asset protection, the ability to raise funds by selling corporate shares, etc.
For tax purposes, you will commonly hear about C corporations and S corporations. At the federal (and usually state) level, C corporation income is double-taxed. First, income is taxed at the corporate level. Shareholder distributions are then taxed as personal income. In contrast, S corporation income is usually passed directly to the shareholders and taxed at that level instead of double taxation.
C corporations tend to be large publicly traded companies while S corporations are more common for privately held businesses. Although entrepreneurs favor S corporations to C corporations, there is a growing trend to operate enterprises as limited liability companies (LLC) instead where the tax advantages of a limited liability company are similar to an S corporation and the formalities for operating a business are less burdensome.
About the Author
With an advanced international law degree from Georgetown University and more than 15 years of real world legal experience, Attorney Mike Young is President of the Internet Ethics Council and creator of Website Legal Forms Generator software. He helps entrepreneurs protect and grow their businesses online.
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