Welcome to the second part in my series on types of business entities. I help break down common business organizations offered in Washington state and explain their benefits. This post is about another very common type of business structure, the c-corporation.
The corporation is a more complex structure than the LLC. Similar to LLCs, corporations are formed by filing with the Washington Secretary of State. But additionally, the owners (called shareholders or stockholders) must file articles of incorporation. Completing the articles of incorporation requires basic information such as the name of the company, the registered agent and the amount and type of corporate shares (stock).
It gets more complex after that. The stockholders must agree upon how the corporation will be governed and put that into writing (called bylaws). The bylaws explain how the corporation will be run and for what purpose.
There are also yearly requirements. Corporations must file annual reports with the Washington Secretary of State, hold annual meetings and elect directors, among other things.
At tax time, the IRS treats corporations separately from its stockholders. The corporation pays tax on profit the corporation earns. If the corporation distributes earnings to stockholders (dividends), the stockholders pay individual income tax on the dividends they receive. Unlike LLC members, stockholders cannot deduct corporate losses. Another way to set up federal taxation for corporations is to use s-corporations. I will discuss this in a later post.
Although corporations are more complex structures than LLCs, sometimes using that structure can be more beneficial for companies. The structure allows for large amounts of stockholders. Corporations sometimes can have easier access to financing than LLCs. Also, stockholders and directors have limited personal liability for actions taken by the corporation, similarly to an LLC. There are a lot of pros and cons to consider in determining which structure is best for your business. Do not hesitate to reach out to me for more information and to help set up or grow your business!
The information provided on my blog is not legal advice and should not be relied on as legal advice.