Corporation
Corporations provide limited liability protection to the business owners. This means that if the business fails,
the business owners do not have to use their personal assets for unpaid business debt. This limited liability protection
does not apply to taxes.
There is an $800 minimum annual tax for all corporations (including corporations formed out-of-state)
In practice, incorporating does not protect owners from acts that they do themselves. That is because people can sue both the corporation
and the person individually. Also, incorporating does not protect owners if they guarantee debt. Most lenders require the major
shareholders to personally guarantee debt. By incorporating, the smaller shareholders are protected, but not the larger ones.
So overall, incorporation makes sense if other people (employees or partners) will be doing some of the work or you have smaller shareholders that you want
to protect from debt.
There are S corporations and C corporations. This is a tax designation only. Normal corporations (C corps) have their earnings
double taxed. First the corporation is taxed. Then profit is distributed to shareholders and shareholders pay tax
on those dividends. S corporations were developed so that earnings are only taxed once. However, S corporations cannot offer incentive stock options to employees.
The kit below contains the forms for both.
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