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 Corporations
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 C-Corporations |
| S-Corporations |
| Professional Corporations (PC) |
The formalities for incorporating a business are greater than for forming a partnership. There are also subsequent rules for the maintenance of the corporate entity such as annual meetings and the keeping of company minutes. Corporations are legal entities unto themselves, from a both a legal and a tax perspective. The corporation files its own tax returns annually and pays taxes according to the applicable corporate rate. Shareholders are the actual owners of the company with risk and liability to the extent of their monetary investment. Officers and employees run the day to day affairs of the company. The Board appoints officers and makes major decisions such as changes to the Articles of Incorporation. The board is elected through a vote of the shareholders.
There are two choices for incorporation, the S-Corporation and the C-Corporation. Both forms have their utilities. The basic differences center around tax treatment and the number and type of shares which can be issued. |
| The most important consideration is that the corporation is its own separate legal entity. As a result, corporation owners are insulated from debts and legal liabilities which may accrue. The insulation has its limits and may be negated through errors and omissions, particularly relating to corporate formalities and funding. The under funding of the corporate entity (too little or no insurance or assets) can result in what is known as “Piercing the Corporate Veil”. This is not easily accomplished, and with proper care on the part of the business owner it should never occur. |
Publicly traded corporations and private close corporations can be contrasted in many ways. There is much more regulation as to publicly traded firms. Most firms start out as privately held and “go public” at an opportune time in order to raise large amounts of capital in exchange for stock. The capital is used to build and promote the enterprise.
A direct result of the independent status of the corporation from its owners is that corporate profits are taxed to the corporation and individual owners only pay taxes on money drawn in the form of salaries and bonuses.
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| C-Corporation: |
| C-Corporation refers to a general for profit corporation. Articles of Incorporation are filed with the State along with the required fees. |
Separate Legal Entity:
C-Corporation refers to a general for profit corporation. Articles of Incorporation are filed with the State along with the required fees. A corporation which is properly formed and operated establishes a legal entity separate from shareholders for tax and liability purposes.
Management of the Corporation:
Corporate authority emanates from the Board of Directors, while the management of day to day activities is conducted by officers and employees. The Board of Directors focuses on corporate policy.
Corporate Formalities:
Corporations must observe certain formalities such as annual meetings with corporate minutes. Stock must be issued to the shareholders. Shareholders of course are the true owners of the corporation. Also, accurate books and records must be obtained.
Taxation:
C-Corporations introduce the concept of dual taxation. First the corporation must pay taxes on income or take deductions for losses. Shareholders, officers and employees then must pay taxes on earned dividends and salaries.
Corporate Duration:
The Corporation exists in perpetuity and is not affected by the death of shareholders, directors or officers.
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| S-Corporation: |
S-Corporations have many of the same hallmarks as C-Corporations. The same record and reporting requirements apply. The main difference between C and S Corporations centers around taxation. S-Corporation election creates a tax structure where all of the corporate entities profits and losses will pass directly through to the shareholders. Shareholders must then report profit or loss on their individual tax returns. Profit and loss is allocated to individual shareholders in proportion to their shares in the business.
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| Professional Corporation: |
A Professional Corporation is relegated to service professions such as accountants, lawyers and doctors. The list is fairly expansive and includes veterinarians and engineers. The main purpose for forming such an entity is to protect shareholders from personal liability. The tax ramifications are the same as for other corporations. An alternative for professionals to consider is the formation of a Limited Liability Company or LLC.
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* Pennsylvania Incorporations Plus+ is a service of Gibson & Perkins, P.C, 200 E. State St., Ste. 105, Media, PA 19063 - a Delaware County law firm with a focus on business transactions, real estate, taxation, estate planning, estate administration and succession planning.
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| Copyright © 2006-2008 Pennsylvania Incorporations Plus. All Rights Reserved. Disclaimer |
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