What is a corporation or an LLC?

A corporation is a legal entity that exists separately from its owners. Creation of a corporation occurs when properly completed articles of incorporation are filed with correct state authority, and all fees are paid.

What is the difference between an "S" corporation and a "C" corporation?

All corporations start as "C" corporations and are required to pay income tax on taxable income generated by the corporation. A C corporation becomes an S corporation by completing and filing federal form 2553 with the IRS. An S corporation's net income or loss is "passed-through" to the shareholders and are included to their personal return tax returns. Because income is NOT taxed at the corporate level, there is no double taxation as with C corporations. Subchapter S corporations, as they are also called, are restricted to having fewer than 75 shareholders, who must be individuals (S Corps cannot be owned by other corps) who are not nonresident aliens.

Do I need an attorney to incorporate?

• In South Carolina a signature by a SC attorney is required on articles of incorporation. In all other states, you can prepare and file the articles of incorporation yourself; however, you should be thoroughly versed in the laws of your state.

• In spite of their seemingly high hourly fees, a good corporate attorney can be a valuable resource to your small biz. If you are unsure of what steps your business should take and you don't have the time to research the mater yourself, even the cost of one hour's consultation can pay off handsomely later. Just remember to bring lots of questions.

What are the benefits of incorporating?

• The primary advantage of incorporating is to limit your liability to the assets of the corporation only. Usually, shareholders are not liable for the debts or obligations of the corporation. So if your corporation defaults on a loan, unless you haven't personally signed for it, your personal assets won't be in jeopardy. This is not the case with a sole proprietorship or partnership. Corporations also offer many tax advantages that are not available to sole proprietors.

• Some other advantages include:
  • A corporation's life unlimited and is not dependent upon its members. If an owner dies or wishes to sell their interest the corporation will continue to exist and do business.
  • Retirement funds, qualified retirement plans (like 401k) may be set up more easily with a corporation.
  • Ownership of a corporation is easily transferable.
  • Capital can be raised more easily through the sale of stock.
  • A corporation possesses centralized management.