A Corporation is an independent legal entity owned by shareholders. This means that the corporation itself, not the shareholders that own it, is held legally liable for the actions and debts the business incurs.is a voluntary association of two or more people who jointly own and carry on a business for a profit. In some states, such as California, there are requirements of certain professionals to operate as a Professional Corporation, often abbreviated as P.C. and corporations can be tax-exempt by being declared a 501(c)3, they can be taxed as a C-Corporation, or taxed as an S-Corporation.
The first thing to consider is if you need to establish a corporation. Will your business engage in a regulated industry, such as a doctor or lawyer? If it is, then you would need to determine if your state, like California, requires those occupations to be performed in a “Professional Corporation.” If this is your situation, and you are in a state, like California, that requires the business to be conducted in a Professional Corporation, then you do not need to consider a Limited Liability Company.
The second thing to consider, if there are no legal issues, is to determine how you want to operate your business. Corporations tend to be highly structured with corporate officer titles (President, Vice President, Secretary, and Treasurer) and can also have a Board of Directors. Corporations must also have documented corporate meetings.
The third thing to consider is where you want to form your corporation. For small businesses, it is often the state that you reside in and plan to do business. If you are planning to operate in multiple states, what state provides you the most advantages or provides for the image that you are trying to achieve.
The fourth thing to consider, what do you want the corporation to be named? It needs to be a unique name and you will want to consider other businesses that may have similar names, website address options, and what suffix you want for the name. A corporation must contain a specific suffix, depending on the state. For example, Colorado requires that the name of a corporation shall contain the term or abbreviation “corporation”, “incorporated”, “company”, limited”, “corp.”, “inc.”, “co.”, or “ltd.” and in California require “corporation”, “incorporated”, or “limited” or an abbreviation of such words.
The last thing to consider is how you want the corporation to be taxed. Do you want the corporation to be a non-profit corporation? Do you want the corporation to be a 501(c)3? Do you want the corporation to be taxed as a completely separate entity (C-Corporation) or do you want the corporation to be taxed on the person tax returns of the shareholders (S-Corporation)? An S-Corporation election is only available in limited small-business situations with a limited number of shareholders. This decision must fully explore the corporation’s goals and the best overall tax decisions.