Business Corporations - The Basics.
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Business Corporations - The Basics.
For many webmasters there will come a time, whether on the first day in the industry or a few weeks or months after you start, that, you want to set up a business structure for your adult ventures however, with so many different types of corporate structures available which type of corporate structure will best fit your needs? This is what we will take a look at in this article.
General Corporations.
A general corporation, also known as a “C” corporation, is the most common corporate structure. A general corporation may have as many stockholders as it likes. Consequently, it is usually chosen by those companies planning to have more than 30 stockholders or large public stock offerings. Since a corporation is a separate legal entity, a stockholder's personal liability is 'usually' limited to the amount of investment in the corporation and no more.
Close Corporations.
A close corporation is most appropriate for the individual starting a company alone or with a small number of people. There are a few differences between a general corporation and a close corporation. A close corporation limits stockholders to a 'maximum' of 30. In addition, many close corporation statutes require that the directors of a close corporation must first offer the shares to existing stockholders before selling to new stockholders. Not all of the states in the US recognize close corporations so you should check if you are eligable to open a close corporation in your locale.
Subchapter S Corporations.
A Subchapter S Corporation is a general corporation that has elected a special tax status with the IRS after the corporation has been formed. Subchapter S corporations are most appropriate for small business owners and entrepreneurs who prefer to be taxed as if they were still sole proprietors or partners. When a general corporation makes a profit, it pays a corporate income tax on the profit. If the company also declares a dividend, the stockholders must report the dividend as personal income and pay more taxes than what they would pay as individuals. S Corporations avoid this "double taxation" (once at the corporate level and again at the personal level) because all income or loss is reported only once on the personal tax returns of the stockholders. For many small businesses, the S Corporation offers the best of both worlds, combining the tax advantages of a sole proprietorship or partnership with the limited liability and enduring life of a corporate structure.
S Corporation Restrictions.
To elect S Corporation status, your corporation must meet specific guidelines as detailed below.
1) All stockholders must be citizens or permanent residents of the United States.
2) The maximum number of stockholders for an S Corporation is 75.
3) If an S Corporation is held by an "electing small business trust," then all beneficiaries of the trust must be individuals, estates or charitable organizations. Interests in the trust cannot be purchased.
4) S Corporations may only issue one class of stock.
5) No more than 25 percent of the gross corporate income may be derived from passive income.
Not all domestic general business corporations are eligible for S Corporation Status as such you should check with a lawyer to find out if your business is eligable to become an S corporation in your local state.
Limited Liability Company.
The LLC is not strictly a corporation, however it offers many of the same advantages. Many small business owners and entrepreneurs prefer LLC’s because they combine the limited liability protection of a corporation with the "pass through"" taxation of a sole proprietorship or partnership.
Corporations - An Overview.
For the most part, the information provided above will allow you to decide almost immediately of the type of business structure you want to setup however, as with many other things of this nature, you should always consult with a qualified lawyer or accountant when it comes to setting up your businesses.
Article written by Lee.
If you have any questions or comments about this article or any other business related issues feel free to post away as this article is going to mark the start of a series of articles over the coming months dealing with business specific topics including taxes, laws, business planning and various other topics.
Regards,
Lee
