What is a Corporation?
A corporation, also known as a “general for profit corporation” is a type of corporate form often chosen by startups.
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One reason for its popularity is that it offers the ability to deduct certain benefits, such as employee health insurance and dental plans, from paying annual taxes. Which can add up to significant savings.
In addition, corporations allow the issuance of shares, which is an advantage for entrepreneurs and venture capitalists who wish to invest in the business.
How does forming a corporation protect business owners?
The establishment of a corporation defines the company as a legal entity, separate from the owners of the business.
This prevents your personal assets, such as your home, vehicles or other assets, from being subject to creditors to pay off the debts accumulated by the company.
A properly constituted company protects its owners from this liability.
For example, if in unfortunate circumstances your company were to face a lawsuit, the company’s assets would be the target, not the owners’ personal assets.
Companies also maintain their own credit ratings, separate from that of the owners.
In the event of insolvency or other credit-related problems, your personal credit will remain intact if the business goes bankrupt.
It also works in reverse; a non-ideal credit rating belonging to an owner will not affect the company’s credit.
What type of companies must register as a corporation?
Corporations are often chosen by entrepreneurs who require a formal business model with flexible ownership options.
Corporations allow the purchase of shares not only from foreign or domestic persons, but also from other companies or legal persons.
This aspect of the corporation makes it an attractive option for companies looking to raise capital, attracting the attention of potential investors.
Corporations also exist forever, provided they are properly maintained and meet their obligations.
So, unlike other types of entities, the existence of the company is not directly tied to who owns the business.
What are the maintenance requirements of a corporation?
Corporations are required to comply with annual corporate formalities, including notifying directors and shareholders of annual meetings, submitting an information statement to the Secretary of State, holding annual meetings and documenting such meetings in corporate documents.
Each state of the United States has its own set of requirements to consider. The due fulfillment of these is a requirement to prevent your company from falling into disuse.
Companies that do not keep up to date can file for reinstatement once their needs are met, but in the meantime they run the risk of losing the liability protection provided by the corporation.
We can help you complete the annual requirements if you decide to choose our commercial maintenance package.
What are the tax advantages of establishing a corporation?
Corporations allow deductions for benefits such as health insurance and employee retirement plans, but are also subject to “double taxation”, where income is taxed at both the corporate and personal levels.
Losses are fully deductible and profits can be left in the business for further expansion.
These advantages don’t always outweigh the potential disadvantages, so it’s recommended that you consult an expert on the type of company that best suits your business goals.