Your small business may have experienced significant growth and success, and the time may come where you are considering incorporating. Before taking this step, however, business owners in Long Beach should make sure they understand their options. The following is a brief overview of several types of corporations.
A corporation not designated as any other type of corporation is sometimes referred to as a C corp. A C corp is a separate entity from its owners for legal purposes. This means that the corporation can make a profit, pay taxes and can be held liable in a legal claim. Essentially, because the corporation is a separate legal entity, the owners of the corporation are not held personally liable for the actions of the corporation.
Under state law, there are certain record-keeping, operational processing and reporting requirements that corporations must follow. Corporations also face double taxation, that is, the corporation is taxed both on its profits and when it pays dividends. Those who own stock in the corporation can sell their shares without disrupting the operations of the C corp.
An S corporation is a way to incorporate without being subjected to the double taxation a C corp faces. This is because the profits of an S corp is passed directly to the business owner’s personal income without having to pay corporate taxes. A business must file their S corp with the Internal Revenue Service in order to have status as an S corp. S corps are limited to 100 shareholders, who must have United States citizenship. Like C corps, shareholders can sell their stock in the company without disrupting business operations.
A benefit corporation is referred to as a B corp. In a B corp, those who own stock in the business keep it accountable to produce a public benefit as well as being financially profitable. Certain states require annual reporting of the B corp’s contribution to the public good.
Learn more about incorporating in California
These are only three types of corporations; there are others. This post is for educational purposes only and does not contain legal advice. Those who want to learn more about business formation are encouraged to visit our firm’s website for further information.