Corporations

A corporation is a legal structure of a company in which owners and shareholders become one in the ownership of the business. Many business owners opt to incorporate at some point because of tax breaks and the removal of self from any legal liability.

How to Incorporate

Businesses become incorporated by filing a number of records with the state in which they operate. These records and applications are typically referred to as “articles of incorporation.” There are often stiff fees that accompany the incorporation process.

Corporation Advantages

One of the biggest advantages to incorporating one’s business is that business owners are not liable for debts should the business go belly up, nor are the people who might own shares of the company. Also, the tax advantages are attractive for many business owners who as sole proprietors were completely responsible for all taxes associated with employees and themselves, including paying Social Security and Medicare fees.

Disadvantages

There are disadvantages to a corporation. The most obvious is that the owner is no longer the sole decision maker; there are others now making decisions in the company. The business takes on a whole new identity when it incorporates itself. Also, the general paperwork is extensive, especially the corporate tax records.

Corporations and Taxes

Taxes are one of the advantages that small business owners claim spur them towards incorporating their business in the first place. Corporations are distinctly different from all other business structures when it comes to taxation. Business owners are not taxed on their income from the business, but from the income that is left in the business for reinvesting towards materials, equipment and many other necessities that make a business run and provide for growth.

Besides this abridged taxation, corporations can deduct numerous items from their taxes, including the usual business and operating expenses and employee incomes.

S Corporations

An S corporation is a particular type of corporate structure that is not nearly as common as it once was. The difference between an S corporation and a regular corporation is that no taxes are required from the S corporation business because the business profits transfer through to the owners. The business owners are required to report their business income on their personal income taxes much like sole proprietorships, partnerships and limited liability corporations.

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