TYPES OF CORPORATIONS

The most common of all corporate structures is the GENERAL CORPORATION. The corporation, like all other corporations, is a separate legal entity that is owned by stockholders (shareholders, i.e. investors). A general corporation may have an unlimited number of stockholders. Due to the legal nature of the corporation, stockholders are protected, personally, up to the amount of their investment, from the creditors of the corporation.

Advantages

• Personal assets are protected from business debt and liability
• Corporation is perpetual (life extending beyond the illness or death of the owners)
• Insurance, travel, and retirement plan deductions are TAX FREE benefits.
• The ownership of the corporation is easily transferable
• Ownership will not affect current management
• Raising capital through the sale of stocks and bonds is simplified

• More Expensive to form than proprietorship or partnerships
• Legal formality
• Must abide by state and federal rules and regulations

A CLOSE CORPORATION has a few minor differences as compared to general corporations. In most states where they are recognized, Close Corporations are restricted as to the number of shareholders, usually between 30 - 50. The shares of stock upon sale are to be offered to existing shareholders first.

Generally a close corporation is particularly suited for the entrepreneur looking to run a "one-person" corporation or for a small group of individuals who will all actively participate in the operation of the business.
 

SUB CHAPTER S CORPORATION

S CORPORATIONS have the same basic advantages of general or close corporations with a MAJOR DISTINCTION OF TAX LIABILITY. Where as the previous corporation file and pay federal taxes on profits of the corporation, the Sub-S CORPORATION eliminates Federal Corporate Income Tax. The IRS allows all profits to "pass through" all profits to the shareholders personal tax return.

Thus avoiding Double Taxation of being taxed at both the corporate and personal level. An S corporation is formed from a General or C-Corporation. The additional filing must take place within 75 days of the formation of the corporation. All stockholders must elect the S corporation status by filing the federal forms necessary.

Sub Chapter S Corporation Restrictions

• Can only be a domestic corporation
• Only one class of stock is permitted
• No more than 75 Stock/shareholders
• Only individuals can be Stockholders
• Each stockholder must be a citizen of the US.

Note: 95% of all corporations Financial Foundations, Inc. help file are Sub Chapter S

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