Most people who choose to incorporate their business do so to limit the liability of the holders of equity interests in their company, who become shareholders in the new corporation. The company is incorporated when the charter is filed and approved by the state. Its charter defines the corporation’s structure, hierarchy, and articulates much about how it will operate. Every corporation is required by law to have at least one annual meeting, and corporations, generally speaking, are owned by one or more stockholders, and, therefore, they all issue one or more shares of stock in the corporation. This is a defining characteristic of corporations that sets it apart from partnerships (who have partners, not stockholders or members) and LLCs (who have members, not stockholders or partners).
Corporations that choose to file a one-page “S-election” with the IRS can be taxed almost like an LLC or Partnership. An S-Corporation can elect to be taxed only once, at the shareholder level, and, in this way, it is more similar to a partnership or a pass-through LLC for tax purposes. S-Corp.s are limited in size to 100 shareholders.
The default status of a new Corporation is that of C-Corporation (“C-Corp.”) C-Corp.s are subject to double federal income taxation, and cannot be pass-through entities, but they are not limited to only 100 stockholders. The corporation first pays taxes on its net income. Then, shareholders pay income tax, again, on distributions of profits.
- Unlimited Remote Legal Consultations for 30 Days
- Drafting of All Formation Documents
- Registration of Documents with the State (at cost)
- Application for Federal EIN
- De Minimus Legal Services at no charge
- Start-Up Assessment ($1,290 value)
- $300 Credit toward Contract Drafting Services
- Risk Management Session
- General Counsel Seminar
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Read about the different business structures and find out which one is best for your business in our FREE ebook: How to Structure Your Business for Success: Choosing the correct legal structure for your start-up!