A C Corporation, otherwise known as a standard business corporation has several variants. Standing apart from these are Nonprofit Corporations which fall under completely different legal statutes and tax classifications. As far as general for profit corporations, there are the "C", "S" and Professional Corporation. By default a "corporation" is a "C" corporation, it is called a C corporation because it is taxed under subsection C of the IRS code. C Corporations can have an unlimited amount of shareholders that can be all forms of legal entities. The S Corporation was created for smaller businesses to avoid double taxation and falls under the IRS code, chapter "S" and has limitations on the amount of shareholders and cannot be owned by anything other than an individual. Professional corporations are essentially C Corporations that are limited to purposes of professional services such as doctors, dentists and attorneys. These types of corporations are formed under state laws that dictate what kind of professionals have to incorporate this type of legal entity.
A C Corporation is taxed separately under special corporate rates on all net profits, after deductions, using the IRS form 1120. Other forms of business allow the profits and/or losses of the business structure to pass through to the owners who incur the tax liability on their personal tax reporting. The C Corporation is a taxable entity.
After a C Corporation pays taxes, any after tax profits can be distributed to the shareholders in the form of dividends, or left in the business for future investment. This can cause double taxation for the business owners, when the corporation pays taxes on the profits of the business and any remaining profits are paid out to the shareholders who pay taxes on the dividend return. The IRS Code sub chapter S addresses this issue for smaller corporations and allows the entity to be taxed as a partnership or a "pass through" tax entity. S Corporations have much more limitations on who can be and how many shareholders there are.
Bylaws govern the corporation. It is an internal document that specifies the operational policies of the entity. All forms are included, even how the bylaws are changed, or amended. This will outline powers, rights and distribution of the stakeholders, from shareholders, directors and officers. Corporate Bylaws are not filed with any state or federal office.
Some states have limits to how many shares a corporation can have and others have franchise tax rules based on the amount of shares and or the value of each share. You should consult with your legal or financial advisor in your state to decided how many shares your corporation should have. As a general guideline, for small corporations with one or just a couple of shareholders where there isn't intention on acquiring investment capital a small amount of authorized shares is recommended with a low par value, such as 1500 shares at $1. This amount is low enough not to impose any increased franchise tax.
Par value is the amount each share of corporate stock is worth, or its value. Each state is different with its par value parameters. Some states allow fractions of a cent in the par value, meaning your shares can be valued at $.001, while others cannot. Some states calculate franchise tax by the shares and par value of the corporation. You should make this decision with a legal or financial professional who works in the state you formed your corporation in. In general a low share amount and small par value will result in the same minimum franchise tax, if applicable.
Yes. By state law, all corporations must have a meeting of the shareholders on, at least, an annual basis. These meetings should be recorded in the form of meeting minutes and all decisions should be documented through corporate resolutions and kept in a corporate record book.
Corporate formalities are important so that your corporation offers the most in liability protection. The primary reason to form a corporation is to separate your personal and business lives. In doing so, the corporation must be properly formed, operated and managed to maximize the protection. There are a number of "do's and dont's" where this comes into play. An example is commingling personal and business funds. When this occurs, should the corporation be challenged by a court, it could be found that the operations of the business were run so closely with personal affairs that the corporate shield could be disregarded. These types of formalities include taxes, property and its use, reporting and management. Other types of operating formalities include those mandated by state and federal law. Those are:
- Corporate Record Keeping: By law, all 50 states require that the shareholders of a corporation hold a meeting at least on an annual basis, and one during the organization, or forming of the corporation. At these meetings, minutes should be taken and kept in a corporate minutes binder, or corporate record book. In these meetings, business items are discussed and decisions are made and the board approves actions taken by the officers of the corporation who run the day to day activities of the business. This formality is often overlooked and comes into play when the corporate veil is challenged. Keeping proper meeting minutes, documenting resolutions made and approved by the board of directors is a formality required only for corporations.
- Registered Agent: Every incorporated business entity needs to have an address of server process on public record. This cannot be a PO box, it must be a physical address within the state the corporation is based or conducts business and is foreign qualified. In many cases, small business owners do not want their home address on public record, so they select a designated registered agent whose address appears on public record and satisfies this formality.
- Annual Statement of Information: Every filed entity or incorporated business structure must file an annual statement of information, or annual report. This tells the state office any changes in the critical information of the business, such as addresses, change of officers, directors and shareholders, etc. This typically involves a nominal fee and can be performed electronically on most state's websites.
- Paying Taxes: Of course, every corporation must report and pay taxes to both federal and franchise governments on time and according the the tax classifications filed.
In order to open a business bank account, and EIN number is required. In order to obtain your number from the IRS, a form must be completed, signed and sent in. When you complete the form, if it is a new business, the process is straight forward. If you already have an EIN number prior to incorporating, then there are some additional information requirements. You can apply online with the IRS and find more information here http://www.irs.gov/businesses/small/article/0,,id=98350,00.html. Companies Incorporated can prepare your EIN form or obtain your EIN number for you. Its that easy!
Corporations have organizational structure. The owners of the corporation, or shareholders, elect a board of directors to oversee corporate management. The day to day activities of the corporation are the responsibility of the corporate officers, who are selected by the board of directors.
In general a corporation has 4 primary officer positions, those are: President, Vice President, Treasurer and Secretary. In any case a corporate structure could be adopted to include many types of corporate officers.
The board of directors is an assembled body, selected by the shareholders of the corporation. The board of directors oversee the management and policies of the corporation, meaning they elect officers and approve decisions made by them. There isn't a requirement for a board of directors or a minimum amount, this is typically a larger corporate structure.
When you incorporate there are several operating formalities that must be conducted. The business is required to perform actions by both state and federal laws. These involve paperwork, reporting and nominal expenses throughout the year. The primary disadvantage are the formalities involved, however these are far outweighed by the liability protection and advantages, in most cases.
Articles of Incorporation are the actual documents that are filed and recorded with the secretary of state branch office. This is your corporation's "birth certificate" and it is a legal document.
A S Corporation is a corporation that falls under a different IRS tax classification, specifically sub chapter S election using IRS form 2553. This allows the corporation to be taxed as a partnership, a "pass through" tax entity where the profit and losses are recorded on the shareholders individual tax returns.
Any U.S. resident over the age of 18 can incorporate. There are other criteria for non U.S. residents to incorporate that depend on the country and corporation type.
In general the primary operating formalities that can involve expenses are maintaining a registered agent office - Companies Incorporated offers FREE registered agent representation in all 50 states for the first year with all incorporations. Annual statements of information filed with your state will cost approximately $15 to $55, depending on your state and can be filed electronically. Keeping a corporate record book or annual meeting minutes can be done by the secretary of the corporation at no cost.
Companies incorporated offers the most free information on the Internet for incorporating. You can browse our services and entity specific information here:
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Professional corporations are filed as standard C corporations and can choose to elect S corporation status. The primary difference is the type of business and what professional service can, or has to, be a professional corporation. In general, doctors, dentists and attorneys will form professional corporations.