Types of Corporations: How to Choose What’s Right for You!
- August 11th, 2014
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Just like there are different kinds of partnerships, there are different types of corporations as well. However, there’s a very distinct different between partnerships and corporations. Corporations exist as independent entities, meaning that they pay their own taxes and hold all legal liability for their actions and debts. This is essentially the complete opposite of a partnership, wherein the individual partners report the company’s income on their personal tax statements, and are fully liable for any actions or debts that affect the business.
More often than not, corporations are best suited for bigger companies, due to the complexities of the structure, tax, and legal requirements, and the high cost of setting them up. Corporations give business owners to “go public” with their business, offering to sell shares in the company in the form of stocks. When companies go public by way of an initial public offering (IPO), it makes them more attractive to investors and high quality employees.
The primary type of corporation is a C Corporation. These are formed under the laws specific to whatever state in which they’re being registered. Upon registering your business name with your local state government, you may have to file additional paperwork if you decide to operate under a name other than your company’s legal name. This is called an assumed name, trade name, or DBA (doing business as) name. Partnerships also have to file documentation if they choose to operate under a fictitious name. However, corporations typically differ from partnerships in that they are also required to include a corporate designation at the end of their business name, such as “corporation,” “incorporated,” or “limited.”
The documents that you’ll have to file will vary by state when registering your business as a corporation, but they generally include articles of incorporation, and sometimes require that you establish directors who will issue stock certificates to initial shareholders during the registration process. All of this is done through the Secretary of State’s office, just as it is done for partnerships.
Also similar to registering partnerships, after you’ve registered your corporation, you have to get business licenses and permits. You will be required to abide by various regulations that are determined by your industry, state, and locality.
As explained earlier, corporations are responsible for paying taxes, which include federal, state, and sometimes local taxes. Corporations must register with the IRS, state, and local revenue agencies, at which point they receive a tax ID number or permit.
Due to all the intricacies involved in deciding if one of the types of corporations is right for the structure of your company, you should call the tax professionals at JRH & Associates at (516) 794-5752 today!