6.1.4 Corporation

Successful Moo Duk Kwan Studio Ownership

6.1.4 Corporation

There are two options to consider for a Corporation: C-Corporation and S-Corporation.

Corporation (C-Corporation)

A corporation (sometimes referred to as a C-Corporation) is an independent legal entity owned by shareholders. This means that the corporation itself, not the shareholders that own it, is held legally liable for the actions and debts the business incurs. Corporations are more complex than other business structures because they tend to have costly administrative fees and complex tax and legal requirements. Because of these issues, corporations are generally suggested for established, larger companies with multiple employees.

Forming a C-Corporation

A corporation is formed under the laws of the state in which it is registered. To form a corporation you’ll need to establish your business name and register your legal name with your state government. If you choose to operate under a name different than the officially registered name, you’ll most likely have to file a fictitious name (also known as an assumed name, trade name, or DBA name, short for “doing business as”).

To register your business as a corporation, you need to file certain documents, typically articles of incorporation, with your state’s Secretary of State Office. Some states require corporations to establish directors and issue stock certificates to initial shareholders in the registration process. Contact your state business entity registration office to find out about specific filing requirements in the state where you form your business.

Advantages Disadvantages

* Limited Liability

* Ability to Generate Capital

* Time and Money * Double Taxing – In some cases, corporations are taxed twice – first, when

the company makes a profit, and again when dividends are paid to shareholders. * Additional Paperwork – There are increased paperwork and recordkeeping burdens associated with this entity to federal, state and local agencies.

Corporation (S-Corporation)

An S corporation (sometimes referred to as an S Corp) is a special type of corporation created through an IRS tax election. An eligible domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S corporation.

Forming an S-Corporation

Before you form an S-Corporation, determine if your business will qualify under the IRS stipulations. To file as an S Corporation, you must first file as a corporation. After you are considered a corporation, all shareholders must sign and file Form 2553 to elect your corporation to become an S-Corporation.

Tax Savings – One of the best features of

the S-Corporation is the tax savings for

you and your business

Business Expense Tax Credits – Some

expenses that shareholder/employees

incur can be written off as business

expenses

Independent Life – An S-corporation

designation also allows a business to

have an independent life, separate from

its shareholders

Advantages Disadvantages

* Tax Savings – One of the best features of

the S-Corporation is the tax savings for

you and your business

* Business Expense Tax Credits – Some

expenses that shareholder/employees

incur can be written off as business

expenses

* Independent Life – An S-corporation

designation also allows a business to

have an independent life, separate from

its shareholders * Stricter Operational Processes – As a separate structure, an S-corporation require scheduled director and shareholder meetings, minutes from those meetings, adoption and updates to by-laws, stock transfers and records maintenance * Shareholder Compensation Requirements