Why start your own business with a Corporation
- Protect yourself from personal liability
- To promote investor opportunities
- Save on self employment taxes
- Enhances business capital
What is a Corporation?
A Corporation is a third party entity that has been legally formed where it operates as a business. It can open a bank account, own real estate, vehicles and other property in its own name. It can also borrow or sell property. A Corporation normally has a number of stock investors who fund the capital needs of the Corporation but do not manage it. The Corporation is managed by a Board of Directors who are elected by the Stockholders who in turn elect a President, Vice President, Treasurer and Secretary to run the day to day operation of the Corporation.
Why form a Corporation?
A Corporation is a third party entity and protects you from personal liability if the Corporation fails and cannot pay its debts. Additional benefits include:
- There will be self employment tax savings.
- There is an ability for the Corporation to offer medical benefits, retirement plans, and stock participation plans.
- With existing management and the ability to sell stock to investors it is easier to raise capital and obtain credit to expand and make necessary capital expenditures.
Ways to lose Corporation protection against personal liability
- Do not personally guarantee Corporation debts
- Do not intermingle personal money with Corporation money
- If Corporation fails to pay its taxes and violates State law
Different types of Corporations
“C” Corporation is taxed on two levels. The Corporation pays taxes on its Corporation earning. Then the money paid to its shareholders is subject to taxes.
“S” Corporation is normally a small family owned Corporation that has a pass through provision allowed by IRS which allows it to be taxed like a partnership or sole proprietorship. This way the owners of the Corporation may pass through income and expenses and are taxed only one time by IRS. Those who own or are shareholders in the Sub “S” Corporation pay taxes on their profits at their individual tax rates.
Managing a Corporation
- Hold all Corporation meetings as required
- Manage the transfer of Corporation assets
- Keep Corporation records and it affairs separate
- Do not combine or mingle with your personal affairs or records
What do I need to get started?
- The name of the Corporation
- Address of the Corporation
- Names and addresses of owners
- Purpose of Corporation
- Year end tax date