Small Business Help Center

Corporations

What is a corporation?

A corporation is, generally, a business entity that is given many of the same legal rights and benefits as a person. Corporations made up of a group of people are known as aggregate corporations, whereas those made up of a single person are known as sole corporations.

What are the different types of corporate structures?

Stock: This type of structure is what is most often referred to when using the word "corporation". A stock, or publicly traded corporation holds shares that are bought and sold by the general public, or stockholders. The aim of this type of entity is to earn and distribute taxable earnings, or profits, from the business.
Closed: A closed corporation, or close corporation is a corporate structure where the same parties (usually) perform all of the functions of a corporation, such as officers, directors and shareholders. Also, this type of corporation does not issue or trade stock to the public at large.
Non-Profit: A non-profit corporation or not-for-profit organization is a type of corporation that exists to provide services and programs that are of benefit to the public. This type of corporate structure is sometimes referred to as a 501(c)(3), a reference to the tax-exemption status of a non-profit corporation.
Professional: A professional corporation (PC) is a corporation formed for the purpose of conducting a business that requires a license; for example, doctors, lawyers, architects, accountants, engineers and real estate brokers. Most states provide special regulations which allow for a single director, but they often exist as part of a larger, more complicated, legal entity; for example, a law firm or medical practice might be organized as a partnership of several professional corporations. The PC structure does not protect professionals from liabilities resulting from actions such as negligence or malpractice, but it does protect other shareholders or directors from the actions of another.

What are the benefits of a corporation?

A corporation offers a professional stature, a limitation of liability, certain tax benefits and the flexibility of having multiple owners.

How is a corporation different from an LLC?

A more established business entity, corporations are suitable for owners that need liability protection in conjunction with the maximum flexibility in taxation and ownership. However, Limited Liability Corporations provide liability protection along with the simplicity of pass-through income taxation and less formalities.

What sort of business name protections does a corporation offer?

Forming your business as a corporation provides your business name the protection afforded by registering your business name with the state of California. The secretary of state will not allow other businesses that are too similar in name to be filed. The directory of corporate names is also a searchable database, making it easy for you or others to search for corporate names.

What is the annual corporation tax and when am I required to pay it?

In California, the annual franchise tax is payable to the state Franchise Tax Board and is a minimum tax of 8.84% (for a C-Corp) or 1.5% (for an S-Corp) of the corporation's net income or $800, whichever is more. This tax fee is waived during the first year of business for newly formed corporations. Thereafter, annual taxes are due and payable by the 15th day of the 4th month after the beginning of the corporations' taxable year (fiscal year) or April 1 (calendar year).

What are Bylaws and why are they important?

The Bylaws are your instruction manual for the operation of the corporation. They include, generally, operating procedures for electing officers, issuing stock, holding meetings, etc. When you file for a corporation through Signature Filing we ask you questions that will provide you with a customized set of Bylaws, specific to the way you want your corporation structured.

What are the differences between S Corps and C Corps?

C-Corps are appropriate for those business owners that need the maximum in ownership and tax flexibility, combined with liability protection. S-Corps offer business owners the same liability protection combined with the simplicity of what is known as "pass-through" taxation. The IRS imposes some restrictions on S Corps such as limiting the number of shareholders to 100 and disallowing other corporations or LLCs from being shareholders. We highly recommend that you consult a professional regarding corporate taxation structures to find out which one is most appropriate for your particular situation.

How do I elect to become an S Corp?

Corporations are automatically taxed as a "C-Corp" unless they elect to file a formal request with the Internal Revenue Service Entity control division, Form 255 - Election by a Small Business Corporation. When it comes time to file taxes, C-Corps file Form 1120, while S-Corps file Form 1120-S. However, we highly recommend that you consult a professional regarding corporate taxation structures and how to make the appropriate changes for your particular situation.