Corporations are generally the most sophisticated business structures and offer many unique advantages that other business structures do not. But you’ll likely need an experienced attorney to create corporation that suits your particular business needs.
To form a corporation you must file paperwork in the form of the articles of incorporation (or other similar name) with your state’s agency like the secretary of state. You’ll also have to create the bylaws to dictate how the corporation will run. (Please read
"Bylaws of Corporations" for more details.) Additionally, there are other business formalities you must deal with in corporations, such as keeping track of the corporation’s minutes, maintaining a share ledger, etc.
NOTE: The Articles of Incorporation of corporations are fairly similar to the Articles of Organization with LLCs – that’s because LLCs use many similar legal concepts as corporations. Also, the bylaws of a corporation are similar in some respects to the operating agreement of an LLC.
There are many benefits to creating a corporation, one of which is to limit your personal liability. However, a main drawback of a corporation is that their profits are taxed twice! There are legal ways to avoid some of the double taxation, but if your corporation distributes dividends to its shareholders the profits must first be taxed at the corporate tax rate and then at each individual’s personal tax rate.
The general taxes and liabilities for corporations are as follows:
- Taxes – taxed twice on profits at the (i) corporate tax rate, and your (ii) personal tax rate
- Liability – limited liability
Finally, we’ll wrap up this article with some main points to keep in mind.