A corporation is a separate and legal entity that’s owned by shareholders. This type of business has been incorporated by legislation or registration in their state.
Corporations are legally responsible for their activities and debts accrued, not their investors. They tend to be more intricate than other types of business due to legal standards, high-cost administrative fees and involved tax preparation. Therefore, it’s best that larger companies become corporations. A Limited Liability Company and S Corporations are more flexible business structures for smaller businesses.
Depending on where your business is located, the state tax law will dictate how to register and become a corporation. In order to do this, you must declare your legal name and business name to your state government. Laws differ state by state, but most corporations need to add the word corporation, limited or incorporated at the end of their name. Once your company is registered, you’ll need business licenses and permits to run your corporation. The regulations are different according to the state your corporation is located in and the industry you’re involved with.
When it comes to taxes, corporations have to pay state and federal taxes. Depending on their location, they might even have to pay local taxes. The majority of corporations are required to register with the Internal Revenue Service and get a tax ID number. Unlike Limited Liability Companies, who aren’t taxed twice, most corporations must pay taxes on their profits and dividends. Corporations report revenue to the federal government using IRS Form 1120 or 1120-A.
There are some advantages and disadvantages to operating a corporation. On the whole, you have limited liability. A corporation shareholder enjoys protection of their personal assets. A corporation also has the capacity to generate capital. This means they can raise funds fairly easily for their company by selling stock. Corporations can offer competitive benefits to their employees, which appeals to a variety of highly qualified candidates. Unfortunately, it takes a great deal of time and money to begin a corporation and keep it thriving. With tax and start-up costs, a corporation commands a good deal of risk and financial investment. There’s also the daunting task of dealing with a great amount of paperwork. In order to keep in line with tax codes and requirements from local, state and federal agencies, corporations must keep detailed records of their company’s activities.
