What Is a Corporation?

A corporation is a legal entity that is separate and distinct from its owners. Corporations enjoy most of the rights and responsibilities that individuals possess: they can enter contracts, loan and borrow money, sue and be sued, hire employees, own assets, and pay taxes.

Corporations are governed by the state in which they are incorporated and must, therefore, respect both state and federal laws. There are also international corporations, which operate on their own regulatory systems.

Corporations, and especially C-Corps and S-Corps, are some of the most commonly used forms of incorporation, specifically for companies planning to grow, seek capital, or isolate business from personal assets. It is essential to get expert advice from tax or legal consultants to choose a structure appropriate to your company requirements.

Forms of Corporations

C-Corporation (C Corp)

A C-Corporation is best suited for bigger companies, particularly those planning to raise funds or possibly become public. It accommodates unlimited shareholders, making it a good choice for businesses with investors or IPO plans.

The disadvantage is that C-Corps are subject to "double taxation," in which the company is taxed on its earnings, and the shareholders are taxed again on dividends they receive.

S-Corporation (S Corp)

An S-Corporation is usually best for smaller businesses or closely-held corporations. Profits, losses, and tax debts can "pass through" to the individual shareholders and are reported on their own tax returns.

Double taxation is eliminated, but S-Corps have only 100 shareholders and one class of stock can be issued. Shareholders are required to be U.S. citizens or permanent residents.

Best Corporation Services

If you're looking to incorporate, several online business formation services can make the process easier and more affordable. These services assist with all aspects of forming your corporation, from registering your business name to filing incorporation documents, handling compliance, and providing registered agent services.

SwyftFilings

Best Overall Corporation Filing Service

SwyftFilings provides a smooth, user-friendly platform for getting businesses incorporated promptly. It gives you everything that you require, such as a free tax consultation, name check, preparation, and filing of incorporation papers, and more.

Pros:
  • Filing of the corporation begins at $0
  • Rapid registration process (less than 10 minutes)
  • Features a free tax consultation
  • For all 50 states
Cons:
  • Some additional fees for a la carte services

IncFile

Best for Low-Cost Corporation Filing

IncFile provides a very low-cost solution for business incorporation. Their free package includes the essentials such as preparing and filing articles of incorporation, and a free year of registered agent service.

Pros:
  • Corporation filing begins at $0 + state fees
  • Free registered agent service for the first year
  • More than 500,000 businesses formed since 2004
Cons:
  • Few advanced features in the free package

Northwest Registered Agent

Best for Professional Registered Agent Services

Northwest Registered Agent is best for companies requiring professional registered agent services. They provide a variety of corporation formation services with a focus on privacy protection and customer service.

Pros:
  • Quality registered agent services
  • Offers professional support and advice
  • Articles of organization with every package
Cons:
  • More expensive basic package prices than some others

RocketLawyer

Ideal for Basic Incorporation and Legal Solutions

RocketLawyer provides an easy online incorporation process together with access to legal tools, such as contract templates, legal consultation, and review of documents.

Pros:
  • No-cost corporation formation with a membership
  • Provides full-service legal services
  • Covering all 50 states
Cons:
  • Requires subscription for free incorporation service
  • May be more costly without subscription

Why Incorporate?

Starting a corporation has numerous advantages, including limited liability, the ability to raise capital, and a more formal structure that can encourage investor, customer, and partner confidence. Following are some of the reasons why incorporating might be the best option for your company:

Limited Liability Protection

Incorporation protects your personal assets from business debts, so creditors can only target the corporation's assets, not your personal assets.

Perpetual Existence

Corporations remain in existence even when the owner or a shareholder passes away, promoting business continuity and simplicity of transferability of ownership.

Growth and Investment Opportunities

Incorporating enables you to access funds more readily by selling stock (in the case of a C-Corp). Corporations also benefit from tax benefits that can be capitalized upon for expansion.

Credibility and Prestige

Having "Inc." or "Corp." at the end of your business name can give your company credibility and a professional image. It will also make it simpler to obtain loans or attract investors.

Clear Management Structure

Corporations usually have a clearly established management hierarchy, with a Board of Directors making key decisions and officers handling day-to-day operations.

C-Corporation (C Corp)

C-Corporations are ideal for larger companies or those planning to grow. They provide flexibility in ownership and the capacity to issue more than one class of stock. The main disadvantage is double taxation, i.e., the corporation is taxed on profits, and shareholders are taxed on dividends they receive.

S-Corporation (S Corp)

S-Corporations are best for small companies that want to avoid double taxation. They permit income and loss to pass through to the stockholders, who report them on their individual tax return. Still, there are very restrictive rules on how many stockholders (100 maximum) and what kind of stockholders are permitted (only U.S. citizens or residents).

Final Thoughts

Selecting the proper corporation type is based on your business size, objectives, and financial requirements. Whether you opt to have a C-Corp or an S-Corp, incorporating with a professional incorporation service can save you time and make sure all your tax and legal requirements are satisfied. By having proper tools and resources, you can make sure your corporation is established for long-term success.