C Corporation
A corporation is an artificial legal entity (technically, a juristic person) which, while made up of a number of natural persons or other legal entities, has a separate legal identity from them.
Legal benefits
- Protection of personal assets. Safeguarding personal assets against the claims of creditors and lawsuits. Sole proprietors and general partners in a partnership are personally and jointly responsible for all the liabilities of a business such as loans, accounts payable, and legal judgments. In a corporation, however, stockholders, directors and officers typically are not liable for their company's debts and obligations. They are limited in liability to the amount they have invested in the corporation (eg: If $100 in stock was purchased, no more than $100 can be lost). Corporations may also hold personal assets like houses, cars or boats. If one is personally involved in a lawsuit or bankruptcy, these assets may be protected. A creditor of the owner of a corporation cannot seize the assets of the company; however, they can seize their ownership shares in the corporation, as that is considered a personal asset.
- Transferable ownership. Ownership in a corporation is easily transferable to others, either in whole or in part. Some states' laws are particularly attractive to this end.
- Retirement funds. Retirement funds and qualified retirement plans may be set up more easily with a corporation. Corporations can also fully deduct the cost of paying its owner's health insurance.
- Taxation. In the United States, corporations are taxed at a lower rate than individuals. Also, they can own shares in other corporations and receive corporate dividends 80% tax-free. There are no limits on the amount of losses a corporation may carry forward to subsequent tax years. A sole proprietorship, on the other hand, cannot claim a capital loss greater than $3,000 unless the owner has offsetting capital gains.
- Raising funds through sale of stock. Capital from investors can be raised for corporations easily through the sale of stock.
- Durability. A corporation is capable of continuing indefinitely. Its existence is not affected by the death of shareholders, directors, or officers of the corporation.
- Credit rating. Regardless of an owner's personal credit scores, corporations acquire their own credit rating, and build a separate credit history by applying for and using corporate credit.
S Corporation
Seeing your small business start to succeed and grow into a well-established company is a dream come true for entrepreneurs. But as your company grows, your tax rate tends to grow too. Growing companies face a variety of complexities during tax season, and that’s why when your company starts growing, you may want to consider forming an S Corporation, otherwise known an S Corp. The S Corp is a business entity that offers significant tax advantages while still preserving your ownership flexibility.
An S Corp, also known as the subchapter or small business corporation, is a tax code that was enacted into law by Congress in 1958. The S Corp was created to encourage and support the creation of small and family businesses, while eliminating the double taxation that conventional corporations were subjected to.
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