FREQUENTLY ASKED QUESTIONS ABOUT CORPORATIONSDo I need an attorney to form a Corporation ?
No, an attorney is not a legal requirement. You can prepare and file the articles of incorporation yourself; however, you need to be knowledgeable in the laws of the State of Texas.
You can use our service to form your corporation and save money on attorney's fees. However, if you are unsure of what entity would be most beneficial to your business, consult an attorney or accountant.
Why Should I incorporate?
The main reason why people incorporate is the limited liability that a corporation offers, meaning that if your business is not doing too well your personal assets are protected from creditors and lawsuits.
What is a Corporation?
A corporation is a separate legal entity created by the state at the request of individuals. In the eyes of the state and the public a corporation is a separate person and not an extension of its owners.
What are the different types of corporations?
Broadly speaking there are two types: -
Both types of corporations are created in exactly the same way, however to setup a S-corporation an additional form must be filed with the state.
What is the difference between S and C corporations?
C-Corporations and S-Corporations are formed in exactly the same way. The same filing procedure is used for both types of businesses within the State of Texas. However, an S-Corporation must fill in an additional tax form that will give the S-corporation a special tax status with the IRS. This special tax status enables S-corporations to avoid paying corporate income tax, C-corporations must pay corporate income tax.
What is the management structure of a Corporation?
The typical corporation is tiered meaning that the management structure comes in the form of layers. A corporation is owned by its stockholders and typically they do not manage the business, instead they elect the board of directors. The board of directors is responsible for important management decisions such as hiring a manager who will run the day-to-day operation of the company. These managers include the president, vice-president, secretary and treasurer.
What is an S-Corporation?
An S-Corporation is a C-Corporation that has elected a special tax treatment with the IRS. Normally C-corporations pay corporate income tax on the income they generate, the remainder of the after tax income is then distributed to the shareholders as dividend, the dividend is then taxed as personal income to the shareholders. This situation is referred to as double taxation, S-corporations address this issue by avoiding the corporate income tax on the income that the corporation generates. In other words the income an S-Corporation generates is not taxed. Instead the income flows directly to the shareholders (owners) income tax returns and is taxed there as personal income. However there are restrictions imposed on S-corporations, for more information click here
Should I form an LLC or S-Corporation?
Both forms of business entities eliminate double taxation ie both offer the benefits of pass through taxation. However an LLC is much more flexible and does not have the restriction that an S-corporation imposes.
What are the advantages of a Corporation?
- The main advantage of a corporation is the limited liability it offers its shareholders (owners). Normally shareholders are not liable for business debts beyond what they have invested in the business.
- A corporation is a separate legal entity and does depend on its owners, a corporation will continue to exist if one or more of the owners die.
- The ownership of a corporation can be easily changed by the sale of shares.
- Employees can be given a share of the business via stock options.
- Tax deduction benefits and employee benefits.
What are the disadvantages of a Corporation ?
- Double taxation, the income that a corporation generates is taxed at two levels (unless you elect for an S-corporation):
- Corporate income tax is paid at the corporation level.
- Personal income tax is paid on the income that is given to shareholders on dividend.
- The complexity of the corporation structure.
- There a number of restriction imposed on an S-corporation.
- The State of Texas charges more in fees for a Corporation than an LLC.