It’s important to debunk the biggest myths and set the record straight. Forming a corporation has its challenges, but understanding the realities can help you make an informed decision. Public corporations are regulated by federal law through the Securities and Exchange describe some of the advantages of forming a business as a corporation. Commission (SEC).

Benefits of Forming an S Corporation

These shed many formalities that typically govern corporations and apply to smaller companies. There are several third-party benefit corporation certification services, but none are required for a company to be legally considered one in a state where the legal status is available. A benefit corporation is a for-profit corporation recognized by a majority of U.S. states.

Legal Requirements and Formalities

• Learn more about our full process and see who our partners are here.
• Aside from meeting state requirements, nonprofit corporations must obtain a tax exempt status from the IRS, and simply applying for this status costs $750.
• It is the process of legally declaring a corporate entity as separate from its owners.
• You’ll have to have more capital at your disposal when you’re first starting the business, pay ongoing fees like articles of corporation, and pay higher taxes.
• Shares can be sold at any time to fellow investors, and investors typically find corporations more credible than other types of business entities.

North One is proudly made for small businesses, startups, and freelancers. We believe bookkeeping that better banking products can make the whole financial system more inclusive. A public company, on the other hand, has its securities listed on an exchange. They are subject to laws regarding their governance and are more tightly regulated with regard to disclosure of information. Once you’ve chosen a structure, you must also address unique formation, management, and compliance requirements to be met.

• Consult with an attorney before jumping on the idea of forming a corporation.
• Remember income is taxed when a corporation earns it and again when it’s paid out to the owners.
• Corporations have certain characteristics that make them distinct from other business structures.
• An LLC lets you take advantage of the benefits of both the corporation and partnership business structures.
• A company appoints a liquidator who sells the corporation’s assets.
• While corporations provide significant benefits such as limited liability protection and access to capital, they also present challenges like double taxation and increased regulatory requirements.

Access to Capital

This ease of fundraising makes corporations a preferred structure for businesses looking to expand, develop new products, or enter new markets. Additionally, the ability to issue different classes of stock gives corporations flexibility in structuring investments. Their liability is limited to the amount they have invested in the company, which shields personal assets such as homes and savings from being at risk. We have financial relationships with some companies we cover, earning commissions when readers purchase from our partners or share information about their needs. Our editorial team independently evaluates and recommends products and services based on their research and expertise.

Q: What should I consider when choosing a business structure?

• S corps allow profits, and some losses, to be passed through directly to owners’ personal income without ever being subject to corporate tax rates.
• It’s also a good idea to check your state’s list of restricted words.
• When a company does go public, they will issue an IPO or initial public offering.
• An argument can be made that since an incorporated entity’s tax filing is separate from any individual’s, there is also an administrative burden angle when preparing multiple tax returns.
• A crucial step in forming a corporation is opening a corporate bank account.
• It’s named after the subchapter of the Internal Revenue Code (subchapter “C”) where regulations regarding taxing are described.
• For example, S-corps have the luxury of splitting their income between the business and shareholders, which allows it to be taxed at different rates.

If you are passionate about owning and operating your business, forming a corporation is usually a poor choice. Individuals cannot personally own a corporation, as these entities are separate from their owners. Also, a corporation is governed by a board of directors instead of an individual owner.