A corporation is a legal entity that is separate and distinct from its owners. Subject to a few exceptions, the owners of a corporation (called shareholders) are not personally responsible for the corporation’s debts and liabilities. Corporations come in many shapes and sizes. Large corporations and start-up companies that plan to accept venture capital are typically structured as C Corporations.
C Corporation or S Corporation?
A corporation can be taxed as an S Corporation or a C Corporation. Every corporation is a C Corporation by default unless it elects to be taxed as an S Corporation by filing an election with the Internal Revenue Service (IRS). A C Corporation is subject to double taxation. The profit of a C Corporation is taxed to the corporation when earned and then is taxed to the shareholders when distributed as dividends. An S Corporation is a pass-through entity for federal income tax purposes. It does not pay federal income tax itself; instead, it files an informational tax return (form 1120S) to report income, losses, deductions and credits passed through to its shareholders. A corporation that elects to be taxed as an S Corporation must meet specific requirements contained in the IRS code, including:
- Have no more than 100 shareholders
- Shareholders must be U.S. citizens or permanent residents
- Shareholders cannot be another corporate entity including other corporations, LLCs or partnerships.
- The corporation can have only one class of stock
- All shareholders must consent to the S Corporation election
Forming a Corporation
A corporation is formed by filing Articles of Incorporation or a Certificate of Incorporation with the Secretary of State. The Articles of Incorporation must include: (i) the corporation’s name; (ii) the name and address of the corporation’s registered agent; (iii) the purpose of the corporation; (iv) the number of authorized shares, issued shares and consideration to be paid for the shares; and (v) the name and address of the corporation’s incorporators. The Articles of Incorporation may also contain information about: (x) the corporation’s initial board of directors; (y) property to be contributed to the corporation; (z) rules for the governance and management of the corporation, including preemptive rights, voting rights and other governing provisions.
Linnemeyer Law offers flat-fee arrangements for formation of corporations. These flat fees include the services listed below:
- Initial Consultation
- Name Availability Search
- Prepare and File Articles of Incorporation
- Obtain EIN (Employer Identification Number) from the IRS
- S Corporation tax classification election
- Prepare Initial Resolution of the Shareholders
- Prepare Initial Resolution of the Board of Directors
- Prepare By-Laws
- Prepare Stock Certificates
- Prepare other governing documents, including Shareholder Agreement and Voting Agreement
These flat fees start at $1,000.00 and increase based on the complexity of the business structure. An attorney experienced with corporations can help you plan how to meet the various organizational and ownership requirements, prepare Articles of Incorporation and governing documents, and provide general advice for making your corporation venture a safe and productive enterprise. Please contact Linnemeyer Law, LLC for more information on corporations.