Corporations still have a place in the world. The IRS and some CPAs really prefer Corporations if you are using a Pension Plan. They like the use of a corporation for this better than trying to operate an LLC as a C-Corp.
Some people worry about all the red tape of a corporation such as annual meeting, annual reports, and minutes. There are companies that do that for you.
It’s actually very simple to set up a corporation. But you need to be sure to treat it like a corporation so that you can have the protections you want.
And one thing that’s really great about a corporation as opposed to an LLC is when that time comes you want to go public it’s really easy to do. You can make that corporation go public really easy, whereas an LLC has a few more steps and sometimes you have to dissolve the LLC and basically start over with a new corporation. So, if you are thinking big and you want to get really large some day you probably want to set up a corporation right out of the box.
By incorporating your business, you create an entity that is separate and distinct from you as an individual. Special laws and taxes apply to any corporation. A C corporation (the standard type) may not be the best structure for a small business, especially one in start-up phase. The formalities are many, and the tax consequences may leave less money in your pocket. Note that the liability protection you might be seeking in a C corporation can also be found in a limited liability company or a subchapter-S corporation. However, if your business is growing large and you want to raise money through the sale of stock, a C corporation may be the way to go.
To incorporate, you must file articles of incorporation, create corporate bylaws, and fulfil other state requirements. Stock must be issued, even if you’re the sole shareholder. If you commingle personal and corporate assets or otherwise fail to conduct the corporation as a separate and distinct entity, you may lose your right to limited liability—which is a primary reason for forming a corporation.
The business must report income on a corporate tax return, separate from shareholders’ returns. Also, regardless of profitability, many states have minimum taxes that are owed by corporations. Shareholders will be taxed for dividends received, and, of course, any salaries from your corporation will be taxed at individual rates. Corporate tax returns are more complicated than individual returns, which generally means higher fees paid to a tax professional. On the other hand, corporations are usually taxed at a slightly lower rate than individuals—34 percent maximum versus 39.6 percent.
Limited liability for shareholders is a vital benefit. Under normal circumstances, a corporate owner’s liability is limited to funds invested in the stock. Stockholders cannot be held personally liable for corporate actions, and creditors are limited to corporate assets when seeking to collect monies owed.
Corporations have a method of raising money not available to other types of business structures. They sell stock to the public. Furthermore, with a standard C corporation, there are no limits as to who can own stock or to the number of shareholders, thereby maximizing the potential access to capital.
Once formed, a corporation continues in existence until formally shut down. Thus, if a key player in the corporation dies, formal action is not required by the corporation to deal with the problem. The ownership of the deceased will simply pass to the heirs. Also, under most circumstances, stockholders can sell their stock whenever and to whomever they please.