What Type Of Corporation Should I Use?

What Type Of Corporation Should I Use?
March 22, 2013 Webmaster

what-type-of-corporation-should-I-file

You should first identify how big your business is. Certain corporations would work for small businesses and others would work best for big ones. So it is important to consider the size your business when deciding which corporation you should use.

When choosing a corporation, there are several things to consider. First question is, is your corporation a stock or non-stock corporation, profit or non-profit? Next is, if your corporation is a stock corporation, is it privately held or publicly traded? Make sure you know all the answers to these basic questions to guide you in choosing the corporation for you. Aside from these, liability is also a concern. Some corporations protect its owners’ from business liability, and some do not. Here are some types of corporation with its advantages and disadvantages. This will give you an idea on what to choose from a number of choices available.

General Corporation (C Corporation)

  • Advantages: The personal assets of owners are protected from any of his or her business debts and liabilities. This means that if you ever get into trouble with the business, all you personal accounts will not be affected because it is not linked in any way to your business. Another advantage is the corporation will still exist even after owners are deceased. It also has tax-free benefits like insurance and retirement plans, as well as travel benefits. Most of all, it would not be a problem to raise your capital since it would be easier because of your stock sales.
  • Disadvantages: It would cost more money to form and there a so much legal formalities needed to be processed and collected. Also, it can be complicated as it has a lot of rules and regulations that needs to be understood and familiarized.

S Corporation

  • Advantages: Like C Corporation, your personal assets are protected as well. Your personal assets are separate from your business assets, which means that you’re protected in case of any debts of the corporation. There is also room for investors here because S Corporation can as much as 100 shareholders.
  • Disadvantages: S Corporations are required to file a number of documents. Since it is also required to have regular meetings, it is expected for you to file corporate meeting minutes regularly. When it comes to tax, shareholders are taxed for income that the company has even if they did not get any part of the income (unlike C Corporation where they are only taxed if they received their part of the income. Lastly, S Corporations are allowed to issue only one class of stock. This may be very discouraging to most investors.

Limited Liability Company (LLC)

  • Advantages: LLC protects personal assets from business debts, this is common among corporations The Profits or losses are passed through to the personal income tax returns of owners. It is very flexible when it comes to management and organization of the business. LLCs are not strict when in ownership, unlike other corporations. This attracts foreign investors to invest in your corporation.
  • Disadvantages: LLCs can only operate within given years, in most states, thirty years. In a few states, they require that at least two members of the LLC should form another LLC.  Take note that LLCs are not corporations, which means that it does not have stock and the benefits of stock ownership and sales.

Seek for professional advice

This is serious stuff. Although there are many references that will help you make your decision on what corporation to choose, you should consider seeking for professional advice. Nothing beats the advice from a professional who know all the advantages and disadvantages of the different corporations. You are investing a lot here, so why not spend a few more dollars for a professional consultant? It is better to be safe than risk a lot. Getting a professional will save you a lot from all the stress. Also note that rules regarding corporations vary in different states, what is applicable to a certain state may not be applicable in your state. So it is very advisable to get a local professional in your state who can guide you in choosing what corporation would work best for your business and goals.