Corporate Business Structures | Structuring Your Business

New Corporations

Information regarding new corporations and corporate structures is provided in the following sub-sections:

A corporation is a type of legal entity created under the authority of a state as a separate, artificial person. A corporation is separate and apart from its members, stockholders, directors or officers. Generally, one or more natural persons (" incorporators) establish a corporation. In most states, one or more persons may form and operate a corporation. They execute Articles of Incorporation and file them with the Secretary of State for the state of domicile, to start their corporation.

Corporate structures generally provide greater flexibility than other types of business structures.

Corporations provide liability protection for all principals such as, stockholders, board members, or officers. Corporate structures provide better financial privacy, favorable tax treatment and increased business deductions. A corporation is legally defined as an artificial person that is distinct and separate from the principals operating it.

PUBLIC AND PRIVATE CORPORATE STRUCTURES

A private company is privately owned, typically by one person or a small group of people. Its owners don't have to reveal much about their business, and investment in the company is controlled from within the corporate structure. The amount of reporting to public agencies is significantly less than the requirements of publicly held corporations. There are also significantly less regulatory requirements imposed on privately held corporations.

A public company has sold a portion of itself to the public via an initial public offering (IPO) of some portion of shares of its stock. Such corporations could have hundreds or even thousands of co-owners. A domestically domiciled company trading on American stock exchange, is required to file quarterly earnings reports with the Securities and Exchange Commission (SEC). These reports and records are made available to shareholders and the public. A public company must report all of its earnings and information such as, revenue, cost of sales, tax expenses, administration costs, debt load and cash on hand.

TYPES OF CORPORATIONS

C-CORPORATIONS

A C-Corporation creates a separate legal and tax status separate from its shareholders. A C-Corporation pays its own taxes at corporate income tax rates and files its own corporate tax forms each year. The C-Corporation structure has the option set its fiscal year end to any date during the calendar year.

See our C-Corporations section for additional information on C-Corporation structures

See our Choosing a Structure section for additional structure selection information.

SUB-S CORPORATIONS

Typically, a Sub-S corporation is a small corporation. One of the requirements is that there must be 35 or fewer shareholders. The requirements are simple, and the elections are easily filed. A Sub-S corporation is referred to as a "pass-through" entity. This means that with few exceptions, the profit or loss of the corporation passes through to the individual shareholders for tax purposes and is not taxable to the corporation. In some situations, Sub-S corporations can offer substantial tax advantages to the shareholders.

See our Sub-S Corporations section for additional information on Sub-S Corporation structures.

See our Choosing a Structure section for additional structure selection information.

CLOSELY HELD CORPORATIONS

This term is generally used with regard to federal taxation and means a corporation in which five or fewer shareholders hold 50% or more of the stock in the company. Also, it is commonly used in a less technical and accurate way to describe any company held by a single stockholder or a closely-knit group of stockholders.

See our Closely Held Corporations section for additional information on Closely Held Corporation structures.

See our Choosing a Structure section for additional structure selection information.

CLOSE CORPORATIONS

The close corporation is designed so that a few people can form a corporation and operate it without the normal formalities of a regular corporation, such as certain minutes of meetings, resolutions, and the like. A close corporation is really a creature of state law. The IRS is not bound by that state law. This results in the shareholders being held personally responsible for the income of the corporation. Other states that do not provide for close corporations might take the same lack of records and formalities to be evidence of a lack of an actual corporation, resulting in the setting aside of the corporate entity.

See our Close Corporations section for additional information on Close Corporation structures.

See our Choosing a Structure section for additional structure selection information.

DOMESTIC CORPORATIONS

In a given state, a corporation formed under the laws of that state is deemed to be a domestic corporation. For example, a corporation formed in Nevada is a domestic corporation in Nevada.

See our Domestic Corporations section for additional information on Domestic Corporation structures.

See our Choosing a Structure section for additional structure selection information.

FOREIGN CORPORATIONS

A foreign corporation is a corporation formed under the laws of any other state or jurisdiction. In California, for example, a Nevada corporation is a foreign corporation.

See our Foreign Corporations section for additional information on Foreign Corporation structures.

See our Choosing a Structure section for additional structure selection information.

PROFESSIONAL CORPORATIONS

A corporate structure for which many state corporation statutes make special provisions, regulating the use of the structure by licensed professionals such as attorneys, architects, engineers, public accountants and doctors.

The shareholders of the corporation must be professionals. A shareholder is not shielded from liability for his or her own malpractice in a professional corporation. However, the shareholder is not liable for the malpractice of any other employees of the corporation.

See our Professional Corporations section for additional information on Professional Corporation structures.

See our Choosing a Structure section for additional structure selection information.

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