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Corporations
A corporation is different than sole proprietorships and
partnerships for several reasons. A corporation is a legal
entity separate from its owners. This protects the owners
from personal liability. A corporation pays tax on its earnings,
which in some cases leads to double taxation when earnings
are paid to the corporation's owners. A corporation can raise
funding easier, through stocks or bonds. A corporation also
can continue indefinitely, even after the death of the corporation's
shareholders, partners, and owners.
There are several different types of corporations that can
be formed, which are listed below. Additionally, you may
want to consider forming your corporation in different states
to achieve different benefits.
S corporations (S corps)
An S corporation (commonly referred to as an S corp) is
a good option for small business owners. In an S corporation,
income and losses pass to the individual shareholders,
and is included on their personal income tax returns. This
avoids the double taxation associated with C corporations.
An S corporation can have from 1 to 75 shareholders, which
can be individuals, certain trusts, and estates.
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C corporations
A C corporation (also referred to as a C corp),
is the "standard
corporation." Income of the corporation is taxed,
and is then taxed again when the income passes to the shareholders.
This is referred to as "double taxation." Losses
of the corporation are not deductible on the personal
income tax returns of the shareholders.
A C corporation can have 2 or more shareholders, with
no restrictions on the type of owners.
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Limited liability company (LLC)
Limited liability companies (commonly known as LLCs) provide
the tax advantages of a partnership along with the protection
from liability of a corporation. Earnings and losses pass
through to the owners, and are included on their personal
income tax returns.
Unlike an S corporation, there are no limits to the number
of shareholders for an LLC. All owners of a limited liability
company are allowed to participate in the operation of
the company.
An LLC dissolves when an owner quits, retires, or dies.
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Non-profit corporation
Non-profit organizations can take many forms, including
an individual enterprise, a partnership, or a corporation.
A non-profit corporation is organized for a purpose other
than generating income, and no part of the corporation's
income is distributed to its members, directors, or officers.
Non-profit corporations are also sometimes called "non-stock
corporations."
A non-profit corporation is not subject to federal taxes
if it is organized for certain purposes, including charity,
religion, science, education, public safety, and literacy.
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California
corporations
Corporations that operate in the state of California must
pay California taxes. This applies to corporations incorporated
in other states. If your corporation will be based in California,
and will conduct most of its business in California, we
recommend incorporating in California. Compared to Nevada
and Delaware corporations, California corporations give
more power and protection to the shareholders.
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Nevada corporations
Nevada is an attractive state for forming a corporation.
It provides more privacy for the corporation, increases
the ability of the directors and officers to control the
corporation, and does not have taxes on personal income.
If your company will be conducting business in California
or other states, you may still have to pay tax on the income
earned within that state.
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Delaware corporations
Delaware is a popular state for forming a corporation.
Much of modern corporation law in the United States is
based upon laws and judicial opinions of Delaware. Delaware
corporations have increased control by directors and officers,
along with additional privacy. It is easier to raise capital
for a Delaware corporation.
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Additional Business Planning Resources
We will help you determine the appropriate business entity
in order to best serve you and your organization. Some
of the factors to consider when selecting an entity include:
taxation, personal liability, ability to raise additional
capital, growth expectations, and management of the organization.
Some of the different type of entities to be considered
are as follows:
Contact us today for a free consultation to discuss your
business planning needs. Our offices are located in central
San Diego, California. We represent clients throughout
the United States.
To contact us, fill out the form on this page or call
us at 858-350-3124 (San Diego) or toll free at 800-361-1961.
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