Corporation | Tuesday January 13th, 2004 | |
A corporation is considered a separate legal and taxable entity. Therefore, it is the most complex and expensive form of business to set up. Corporations are governed by federal and state statutes. Formal paperwork must be filed with appropriate state government agency where the business is located. In most instances, filing of the Articles of Incorporation with the state government’s corporation division is required. Control of the corporation depends on stock ownership. Liability is generally limited to stock ownership. On other words, the maximum that stockholders can loose is the amount that they paid for the stocks. Corporations are subject to double taxation, meaning, taxes are paid at both the corporation level and on the stockholder's personal tax return. Taxes are levied on corporation profits when the entity files its own return. The stockholders will be taxed again when dividends are distributed to them. Shareholders cannot deduct any loss of the corporation.
Variations
An eligible domestic corporation can elect to be treated as a S Corporation. Just like their counterparts in a C corporation, stockholders of a S corporation are not personally liable for claims against the businesses. However, the lection of S Corporation will allow them to receive favorable tax treatment from the IRS. A S Corporation generally is exempt from federal income tax. its shareholders include on their personal tax returns their share of the corporation's separately stated items of income, deductions, losses, and credits, and their share of non-separately stated income or losses. This avoids taxation.
For Election of S Corp, A Corporation Must Meet All Of The Following:
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| 1 | The corporation must be a domestic corporation ; |
| 2 | It has no more than 75 shareholders. A husband and wife (and their estates) are treated as one shareholder for this requirement; |
| 3 | Its shareholders are individuals, estates, selected exempt organizations, or certain types of trust ; |
| 4 | It has no nonresident alien shareholders ; |
| 5 | It has only one class of stock ; |
| 6 | It is NOT one of the following : |
| A | A bank or thrift institution tat uses the reserve method of accounting for bad debts; |
| B | An insurance company subject to tax under certain tax rules ; |
| C | A corporation that has elected to be treated as a possessions corporation ; |
| D | A domestic international sales corporation (DISC) or former DISC ; |
| 7 | It has a permitted tax year; |
| 8 | Each shareholder consents to the election ; |
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