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CORPORATIONS
A corporation is a separate legal
entity for legal and tax purposes. It is separate from its owners – the
shareholders. It also functions like a natural person in that it can sue and be
sued, enter into binding contracts and has a right to own property.
Although owned by shareholders, a
corporation is controlled by the board of directors, which is elected by the
shareholders.
The main advantage to forming a
corporation is the limited liability protection is affords. If the
corporation is properly formed, and the corporate formalities are observed, the
shareholders and directors are protected personally from lawsuits and judgments.
Another advantage to
forming a corporation is the tax savings you receive. To learn more about
the tax savings, view our article here.
S Corporations
By default, a corporation is considered
a C Corporation when formed unless the owners elect to be taxed as an S
Corporation. For legal purposes, A C Corporation and S Corporation are exactly
the same – it can sue and be sued, enter into binding contracts, and hold
property.
However, for tax purposes, it differs. There is double taxation with a
C corporation. With a C corporation, the corporation is taxed at the
entity level and again at the shareholder level. With an S corporation,
the corporation is only taxed at the shareholder level, thereby
avoiding the double taxation. The income, losses, deductions, and credits,
are passed through to the shareholders. The shareholders report these on their
individual tax returns. In this manner, the S corporation escapes the double
taxation on dividend distributions of a C corporation, and the shareholders are
allowed to offset losses sustained by the S corporation against their other
income.
However, there are restrictions as to
who can elect to be treated as an S Corporation. For example, with an S
corporation:
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The corporation cannot have more
than 100 shareholders.
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All shareholders have to agree to
be treated as an S Corporation for tax purposes.
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All shareholders must be
individuals, decedents' estates, estates of individuals in bankruptcy,
certain trusts, or certain defined organizations The corporation must have
only one class of stock
Generally, for small businesses, S
Corps are favored over C corps.
We invite you to discuss your business
with us. We can help protect you and your family! Call now for
a free consultation. You may reach our office at (310)205-5529.
Remember...Failing to
Plan is Planning to Fail!
To learn more about the
advantages
to forming a Corporation, click here.
To read the most
Frequently Asked Questions about Corporations,
click here.
LAW OFFICES OF ALON DARVISH
9454 Wilshire Boulevard, Penthouse
Beverly Hills, CA 90212
Tel: (310)205-5529
SERVING LOS ANGELES COUNTY
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