There is no perfect entity type that accommodates any and all kinds of businesses out there. It is important to really take into consideration your business size (the number of employees), company goals, limitations and so on in order to choose the best entity for your business. Each entity has its pros and cons so it would be very wise and practical to choose the entity which best suits your business needs, as well as ensure that whichever you choose provides your company with pros that outweigh the cons.
This article is the first part of a two-part series that will cover many aspects of the various kinds of business entities. For an at-a-glance view of the differences between legal strucutres, see our Business Entity Comparison Table.
There are two general kinds of corporations: C-Corporations and S-Corporations. Both corporations require you to file formation documents with a state filing agency, but S- Corps requires additional filings. It is also required in most states for both corporations to have annual meetings and bylaws. For S-Corp you must elect “S Status” through the IRS. The required operational procedures include having a Board of Directors and Officers, annual meetings, filings and reporting.
For both types of corporations the shareholders are not liable for any debts of the corporation, but some members (or officers) can be held liable if it involves fraud or severe mismanagement. Unlike an S-Corp, whose staff size cannot exceed 75 members (or shareholders), a C-Corporation does not have any staff size limitations. Also, both types of corporations can exist for an unlimited amount of time.
There are start-up fees for both S-Corp and C-Corp entities in California: $100 + $800 annual minimum tax starting the second year. S-Corporations are taxed only once a year compared to C-Corporations where both the corporation and the shareholders are taxed. There may also be some additional local city and county registration fees.
Examples of C-Corporations: Automobile makers, software companies, essentially most public companies
Examples of S- Corporations: Family and small businesses such as interior design companies, pizza parlors, print shops
Read more at --->> Choosing the Right Business Entity – Part 2
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