When forming a business, one option to consider for the business’s structure is a corporation. There are different types of corporations, however, that the entrepreneur can select and should be familiar with.
On type of corporate structure is a C corporation. A C corp is a legal entity separate from the owners of the corporation. The corporation can make a profit, be taxed and held legally liable. A corporation provides the greatest amount of protection from personal liability for its owners, however, the costs associated with a corporation are higher than other potential business structures the entrepreneur might select when forming their business.
In addition to high costs that can be associated with maintaining a corporation related to regulatory requirements and other considerations, corporations are sometimes considered taxed twice because the corporation’s profits can be taxed and those dividends can also be taxed on a personal tax return when paid out to shareholders. This is different than sole proprietorships, partnerships or LLC business structures wherein there is not double taxation. One option to consider to avoid double taxation is an S corporation but they may not be available in all jurisdictions and limitations apply. Additional options, such as a B corporation or a nonprofit corporation, may also be available and fit the needs of the start-up business.
Business formation is an important consideration when starting a business so it is essential to review every option. Once the entrepreneur has weighed the different options, and benefits and potential drawbacks of each, they can decide which option is best for their business.