What are Corporations?
A corporation is a legal and business entity with separate rights and liabilities from its founding (as well as new) members. Corporations are formed for a number of reasons: to organize a new business, to protect its members from liabilities and to pool resources together. In essence, a corporation is simply a type of business; usually larger businesses register as corporations in order to handle a larger amount of members, stock owners, and partners.
There are different types of corporations that can be registered. Understanding the different benefits and features of each corporation type is important if you are planning on creating a corporation for your business, as some corporation types are better suited for different business models and industries.
What kinds of corporations exist?
In the United States, there are a few different types of corporations to be aware of:
- General Corporation, or C Corporation: The most common corporation structure in the U.S., the C Corporation is popular because it allows for an unlimited number of stockholders – ideal for big businesses that plan on having a lot of investors or even going public with their shares. If you are planning on having over 30 stockholders in your corporation, you will likely be looking to file for a C Corporation structure.
- S Corporation: Also known as a Subchapter S Corporation, this corporate structure is ideal for sole proprietors who want to be registered as a corporation but still enjoy many of the benefits of sole proprietorship. Needless to say, is a common type of corporation for smaller businesses, as the maximum number of stockholders is currently at the level of 75.
These are two of the most common types of corporations. If you see a company registered as an LLC, remember that the “C” actually stands for “Company,” and the organization registered thusly is technically not a corporation. There are, however, many similarities between LLCs and small corporations.
What kind of corporation should my business be?
That will depend on your business’s goals and needs. If you are a one-man or one-woman operation and don’t have a big need to expand with more members, you may be just fine running a sole proprietorship; in time, you may want to register as an S Corporation. If you have a business that is in need of outside money and is looking to expand, then a C Corporation will likely be in the cards. However, to get the best gauge on your situation, you’ll need to know more than these simple goals; you’ll need to know the precise limitations and capacities of each corporation type.
What kind of limitations does an S Corporation have?
Registering as an S Corporation comes with a number of benefits, such as the tax benefits of a sole proprietorship. However, this advantage also comes with a number of limitations. For example, passive income (such as income on rental property) cannot constitute more than 25% of the gross revenues of an S Corporation. Additionally, offering stock is difficult, as there is only one class of stock to be issued and the amount of shareholders has to be limited to 75. For many sole proprietorships, however, registering as an S Corporation allows for additional liability protection while not increasing tax burden.
Why should I incorporate?
You don’t necessarily have to. Again, it depends on your business and legal needs. The advantages to filing for corporation status are numerous; it helps to keep your liability in business dealings down while also allowing you certain tax benefits. However, there may be some limitations in certain types of corporation filings that you’ll want to be aware of. The best way to evaluate your own incorporation needs is to evaluate the needs of your business and then research which corporation type suits those needs the best. It’s also important to confer with any other members of your business.
How do I file for corporation status?
Filing for corporation status is not as difficult as it sounds. It merely requires the right paperwork and that you follow all of the procedures involved. Many downloadable corporation forms will come with instructions for filing for corporation status in your state, so be sure that you use the forms relevant to your company’s location. From there, you should have no trouble preparing the forms by filling in the blanks, reading them through, and sending them to the appropriate state office.
Besides registration forms, what other kind of relevant corporation forms exist?
There are a number of corporation-related forms you’ll likely need after incorporating your company. For the most part, it’s most convenient to download these forms in a combination package to ensure that all of the necessary forms you need are at your disposal. However, you may simply have a need for a few individual forms, such as Minutes of Shareholder Meeting or Board of Directors Unanimous Written Consent.
From the perspective of start-up forms, many of the popular forms you’ll need include the Articles of Incorporation, Amendment to Articles of Incorporation, etc. It’s good to have all of these at your disposal.
What kinds of contracts are relevant to corporation formation?
Typically, the formation of a corporation does not require contracts from the perspective of the state with which you’re filing your corporation; however, it is important that you have written contracts with all members involved with your company, such as a Partnership Agreement that lays out the details of how a business is to be structured. Having these contracts in writing will be good for your own sake; however, what’s important to the state is how your corporation is registered and structured.
When is my corporation registered?
It will depend on the state you’re filing with; typically, the wait is not long. But you’ll want to check with your local state government before assuming that your corporation has been properly filed; this will ensure that you’re handling all of your legal undertakings under the right context. Things will move most quickly when you use the relevant in-state forms for your corporation filings.