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Which Business Structure Should I Choose? (Part 2)

Updated: May 20

The C-Corporation

Welcome to the second part in my series on types of business structures. In this series, I help you understand the common business structures offered in Washington state and explain their benefits. This post delves into another very common type of business structure, the C-corporation.


Corporate Formation

The corporation is a more complex business structure than the LLC. Similar to LLCs, corporations are formed by filing with the Washington Secretary of State. However, the owners of this business structure (aka shareholders or stockholders) must also file articles of incorporation.


Completing the articles of incorporation requires you to include basic information, such as the name of the company, the registered agent and the amount and type of corporate shares (i.e., stock).


Choosing a C-Corporation

The stockholders must then agree on 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.

Corporate Governance

Corporations have yearly reporting requirements. Corporations must file annual reports with the Washington Secretary of State, hold annual meetings and elect directors, among other things.


Corporate Taxation

The IRS treats corporations separately from its stockholders. The corporation pays tax on profit the corporation earns.


However, stockholders of a C-corporation may be subject to double taxation. If the corporation distributes earnings to stockholders (i.e., dividends), the stockholders pay individual income tax on the dividends they receive. Unlike LLC members, stockholders of a corporation cannot deduct corporate losses.


Individuals may avoid this double taxation by opting to set up a S corporation instead. I will discuss that in a later post.


Conclusion

Although corporations are more complex than LLCs, sometimes using this business structure can be more beneficial for companies.


Corporations sometimes have easier access to financing than LLCs. The corporation allows for large amounts of stockholders, which can be beneficial when it comes to raising funds. Additionally, stockholders and directors have limited personal liability for actions taken by the corporation, similarly to an LLC. There are many pros and cons to consider when determining which business structure is best for you. If you have any further questions, please do not hesitate to contact me.

Which Business Structure Should I Choose Series?


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The information provided on my blog is not legal advice and should not be relied on as legal advice.

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