This blog is a continuation of our series on choosing the correct entity for your business. Last week we laid out some of the pros and cons of becoming an LLC and LLP. Today we’re discussing what it means to be a corporation.
A corporation is a separate entity and taxpayer that has rights and liabilities separate from the owners shielding them from personal liability for business activities. The stockholders are the owners in a corporation and distributes profits and losses through dividends.
It is much easier to transfer ownership of stocks since there is more flexibility and an endless lifespan. Banks and investors tend to be more comfortable with a corporation because it is older than an LLC or LLP and more traditional and familiar. There are also sub-types of corporations available which provide options such as a professional corporation for doctors that offer lower liability protection for negligence and malpractice.
The largest disadvantage to corporations is double taxation brought about by separate tax returns and independent filing. C Corporations are taxed on earnings on their own tax return and when they pay dividends to the owners the owners are taxed on the dividends on their personal tax return causing double taxation. There is also a lot of work involved in dealing with specific legal and financial requirements at state and federal levels and some states charge corporations fees.
After reviewing the three forms of business entities the LLP LLC and C Corporation consider the following and give us a call at Lindemetyer CPA to discuss your options:
- The LLC is a bit more flexible especially in terms of ownership restrictions. LLCs may have any number of members and may operate like Sole Proprietorships Partnerships or S Corporations.
- The LLP is the only business entity requiring one partner to have unlimited liability and may cause discord among your partners.
- The LLC may not be allowed in the states you operate but LLP’s and Corporations are allowed in all states.
- C Corporations are the only business entity with double taxation.