Corporation

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.

What is the definition of a subchapter S corporation?

As defined by Subchapter S of the tax code of Internal Revenue Service (IRS), an S corporation is a business entity that has elected to pass its corporate income, losses, credits and deductions to its shareholders to include on their tax forms