Regular or C Corporations
The law affords people the opportunity to operate a business in one of several different forms or entities. Each form has its own advantages and disadvantages. The most basic form is the sole proprietorship which involves business ownership by one person. Other forms include the partnership, limited partnership, regular or C corporation, S corporation, Limited Liability Company or Limited Liability Partnership.
A corporation is a legal entity that exists separately from its owners. Creation of a corporation occurs when articles of incorporation (called a charter or certificate of incorporation in some states) are filed with the proper state authority and all fees are paid. In addition, to be fully organized a corporation must have a set of bylaws, organizational minutes, and stock certificates.
The two main considerations in choosing the proper form or entity are 1) liability protection and 2) tax benefits.
Liability Protection. One of the important benefits of incorporating is the protection of personal assets. If a business is operated as a sole proprietorship (one person) or partnership (two or more individuals) the law provides that the personal assets of any one or all of the individuals can be taken to satisfy a judgment against the business. This means your home, car, savings, stocks and bonds, retirement, etc., could be taken to pay for the intentional or negligent acts of yourself or a partner in your business. Why risk it when you can incorporate? If a judgment is taken against a corporation, the law only allows the assets of the corporation to be taken to satisfy the judgment. So long as you operate your corporation properly, which is simple to do, your personal assets are protected. You just cannot afford to operate a business without this protection.
Tax Benefits. The small corporation has sometimes been called the “ Ultimate Tax Shelter”. You can earn more money and at the same time legally reduce your taxes. It seems that more and more people are setting up small business corporations and the majority of these are small, home-based businesses. Some involve only one person. Many are finding they don’t have to be big to enjoy tax savings . . . they just have to be smart. Corporations offer numerous tax saving strategies. Of course, you need to discuss any tax strategies with your accountant or tax advisor but here are just a few of the ways small corporation owners are slashing taxes . . . reducing self employment taxes by using an S-corporation . .. installing a wealth-building retirement plan . . . deduct health insurance premiums . . . get special fringe benefits with a corporate cafeteria plan paid for with pretax dollars . .deduct travel expenses . . . deduct wages paid to family members . . .use your corporation to establish an estate plan for transferring some of your hard-earned wealth to your family instead of Uncle Sam . . . and much more. Since each person has different circumstances, each tax strategy should be reviewed by your tax advisor.
To help you decide if a regular C corporation , S corporation or LLC is best for your business, please feel free to call us toll free at 1-888-527-6207.
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