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Which Business Entity is Right for You? (Part 2)
PART 2 – CORPORATIONS
Corporations are considered a legal entity which exists separately and independently from the individuals who create and manage it. Only the corporation itself is legally liable for any negligent actions or debts it may produce. The individual shareholders are not liable.
There are a number of requirements for a corporation:
• Must have an elected board of directors or officers
• Must have an operating agreement
• Must keep records such as annual meetings, meeting minutes, record of resolutions and file annual reports.
The benefits of a corporate entity are substantial. A corporation has an unlimited lifespan as it is not dependent on the life of an individual, as proprietorships and partnerships are. As long as annual reports are filed consistently, the corporation will remain in good standing.
The flexible transferability of shares is another large benefit. Ownership of shares in a corporation can be sold, transferred, given or inherited by simply endorsing and signing over an individual’s stock certificates. It is not necessary to file deeds or retitle anything.
You would also benefit from the increased ability to raise investment capital. It’s much easier to attract new investors to back your business if it is registered as a corporation because of the limited liability of shareholders and the easy transfer of shares.
The major disadvantage of registering your business as a corporation is that it can create an additional tax burden. If your business is designated as a C Corporation, then the profits of your corporation are first taxed at the corporate level and then, any distributions to shareholders are also taxed on each individual’s personal income tax. S Corporations, however, are not taxed on the federal level — only the shareholders’ income is taxed.
If your business is large, or headed that direction, you might want to consider establishing your business as a Corporation. This is an especially preferred choice if you want to market your business to a number of investors, because the “Inc.” following the name of your business can be very appealing.
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Which Business Entity is Right for You? (Part 3)
Which Business Entity is Right for You? (Part 4)
Which Business Entity is Right for You? (Part 1)
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