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What s the difference between a corporation and an LLC?
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What s the difference between a C corporation and an S corporation?
The IRS allows corporations to choose to be taxed as either a C corporation or an S corporation. Income from C corporations are subject to double taxation; that is, the corporation pays taxes on its net income and then the shareholders also pay taxes on the income that they receive from the corporation.
S corporations have only one level of taxation. The shareholders still have to pay taxes on money that they receive from the corporation, but an S corporation does not pay taxes on its net income. While the S corporation is popular among small business owners, C corporations have greater tax planning flexibility.
How does a corporation protect my personal assets?
If a business operates as a corporation, the business owners, called shareholders, are not personally liable for debts or other claims against the corporation. That s because the corporation is a separate legal entity from its owners. If a corporation complies with the formalities required for it to be treated as a separate legal entity, then anyone seeking to collect a debt from, or enforce a claim against, a corporation, would not be able to collect from the shareholders themselves. They would only be able to pursue the assets held in the name of the corporation.
Why do many people choose to form their corporation in Delaware?
Delaware is a very popular place in which to form corporations. However, the primary benefits apply to larger public corporations or those planning to go public. Delaware s laws provide heightened protection for board members against lawsuits brought by shareholders, and Delaware has a court exclusively dedicated to resolving corporate disputes. These benefits don t mean much to smaller corporations. Keep in mind that if a corporation forms in Delaware and does business in another state, the corporation would be required to file additional paperwork, and pay any taxes and/or fees required to do business in that state. Given those factors, many smaller corporations keep it simple and form in the state in which they plan to do business.
An employer identification number (EIN), also known as a federal tax identification number, is used to identify a business entity for tax purposes. It s like a Social Security number, but for a business. In general, most businesses need an EIN. The only reason a business would not get an EIN is if it has only one owner, elects to be treated as a sole proprietor for tax purposes, and does not want to open a separate business bank account. In this case, the owner would use their Social Security number as the business identifier. However, there are disadvantages to this approach, namely the risk of liability.
How are LLCs taxed?
Unlike a corporation, LLCs have some flexibility in how they re taxed. Depending on how many members and the type of tax treatment the owner selects, the LLC can be taxed as either a corporation, partnership or as part of the owner s personal tax return (called a disregarded entity ). By default, an LLC with two or more members are taxed as a partnership, unless they file an IRS Form 8832 to elect to be treated as a corporation. If the LLC has only one owner, it will be taxed as a sole proprietor, unless the owner files Form 8832. It s not necessary to decide which tax treatment until after your business is formed. You have up to 12 months to decide and can speak to an accountant if you need help making this decision.
What is a registered agent?
A registered agent (sometimes called a resident agent or statutory agent) is a person or business authorized to accept important legal documents on behalf of a business. States require businesses to provide the name of their registered agent at the time they form their business entity. While you can be your own registered agent, there are disadvantages. You have to be available during regular business hours and your information goes on the public record. If you miss a filing deadline, you risk being fined or shut down. Our registered agent service can ensure you receive important business documents, sort through junk mail and keep your information private.
Is a corporation right for me?
It depends on many factors. Get help deciding by answering a few questions here .
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