Corporations
A corporation is considered a separate legal and taxable
entity. Therefore, it is the most complex and expensive form of
business to set up. Corporations are governed by federal and
state statutes. Formal paperwork must be filed with appropriate
state government agency where the business is located. In most
instances, filing of the Articles of Incorporation with the state
government’s corporation division is required. Control of
the corporation depends on stock ownership. Liability is
generally limited to stock ownership. On other words, the maximum
that stockholders can loose is the amount that they paid for the
stocks. Corporations are subject to double taxation, meaning,
taxes are paid at both the corporation level and on the
stockholder's personal tax return. Taxes are levied on
corporation profits when the entity files its own return. The
stockholders will be taxed again when dividends are distributed
to them. Shareholders cannot deduct any loss of the corporation.
Variations
An eligible domestic corporation can elect to be treated as a
S Corporation. Just like their counterparts in a C corporation,
stockholders of a S corporation are not personally liable for
claims against the businesses. However, the lection of S
Corporation will allow them to receive favorable tax treatment
from the IRS. A S Corporation generally is exempt from federal
income tax. its shareholders include on their personal tax
returns their share of the corporation's separately stated items
of income, deductions, losses, and credits, and their share of
non-separately stated income or losses. This avoids taxation.
For Election of S Corp, A Corporation Must Meet All Of The
Following:
- The corporation must be a domestic corporation ;
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- It has no more than 75 shareholders. A husband
and wife (and their estates) are treated as one
shareholder for this requirement;
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- Its shareholders are individuals, estates,
selected exempt organizations, or certain types
of trust ;
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- It has no nonresident alien shareholders ;
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- It has only one class of stock ;
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- It is NOT one of the following :
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- A bank or thrift institution tat uses the
reserve method of accounting for bad debts;
- An insurance company subject to tax under
certain tax rules ;
- A corporation that has elected to be treated
as a possessions corporation ;
- A domestic international sales corporation
(DISC) or former DISC ;
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- It has a permitted tax year;
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- Each shareholder consents to the election ;
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