Main Guide: Starting a Business.
A corporation, commonly referred to as a C-Corporation, is a company or group of people authorized to act as a single entity and recognized as such in law. Legally, the corporation is a person. Most jurisdictions allow creation of a new corporation through registration with the government. Registered corporations are owned by shareholders whose liability in the corporation is limited to their investment. Shareholders rarely actively participate in the management of the corporation; instead, they elect or appoint a board of directors that control the corporation in a fiduciary role.
Corporations pay federal, state, and local taxes. They must register with the IRS and state and local revenue agencies, and receive a Tax ID Number.
Unlike sole proprietors and partnerships, corporations pay income tax on their profits. In some cases, corporations are subject to "double taxation" - first, when the company makes profit, and second when shareholders are taxed on the dividends they receive.
- Limited Liability. Shareholders are not responsible for business debts and actions taken by the corporation.
- Sale of stock. Corporations can generate funds through the sale of stock, which gives them a distinct advantage.
- Corporate Tax Treatment. Corporations file taxes separately from their owners. Owners of the corporation will only pay taxes on corporate profits that are paid to them in the form of salaries, bonuses, and dividends.
- Hiring of potential employees. Corporate structure allows you to higher top quality talent because you can offer competitive benefits and open the door for partial ownership through stock options.
- Money & Time. Corporations are costly and time-consuming to both start and operate.
- Double Taxation. Some corporations are taxed twice. First, when the company makes a profit and second when shareholders pay personal income tax on the dividends paid out to them.
- Paperwork. Corporations are highly regulated by federal, state, and local agencies - which means lots of record-keeping and paperwork.