Running a business for profit has its inherent benefits and risks. The benefit of course is the profit you expect to earn from the business. In large corporations fringe benefits are also a factor to running a business. The inherent risks are many. The business owner may borrow money for long term investment or working capital requirements. Have creditors in the form of suppliers or services providers, employ people, supply products or services etc. All these activities generate potential liabilities for a business owner. That is why a C Corporation is advisable for running a substantial business. In a C Corporation, the business owners, generally known as share holders contract no personal liability for the corporation’s business activities and obligations.
Choosing a legal structure for your business depends upon the type of activity you do. A C Corp is not an easy structure to form and maintain. There are considerable expenses and formalities involved in forming a C Corporation and running it. The corporation has to be registered with the domicile state agency and pay considerable fees for filing its application and other relevant documents. An Articles of Incorporation and Bye Laws have to be drawn up. You may adopt a corporate seal, but in many states it is not a mandatory provision.
If your business does not involve transactions that have potential for future liabilities, you may opt to run as a sole proprietorship or if two or more individuals are involved, as a partnership. Both forms of business structure do not require any formal procedures to set up and conduct business. The income tax return for profit or loss from business is filed along with the sole proprietor’s or partner’s annual return filings. No taxes need be paid by the business itself. For small business operators, Limited Liability Company is a good option where the business owners or members can limit their personal liability for business debts obligations.
In a C Corporation, the business has its own legal entity that is separate from the share holders. Statute treats a C Corporation as an independent entity. The corporation can enter into a contract or obligate itself without personally obligating any of its share holders or office bearers. The C Corporation is the only business structure that does not have a pass through tax structure. The corporation has to file yearly tax returns separately from that of its shareholders. Share holders have to report any profit distributed by the C Corporation in their personal income tax returns.
