All business organizations must choose the proper legal structure (or entity) before beginning their operations. For those new to the business world, this is a confusing concept. As such, they typically choose to incorporate without a full understanding of what it means to form a corporation.
Incorporating a business in Scottsdale, Arizona and nearby communities provides owners with personal liability protection and other benefits. However, you still have another choice to make – whether to form a C corp or an S corp.
Compare the differences and similarities between these options
C corporations and S corporations are like one another in several ways. For example, they both offer owners or shareholders that sought-after protection from personal liability. They also both allow the trading or selling of shares to raise capital for expansion or simply to maintain the business.
It is the differences between these two types of corporations that arguably matter the most to business owners. For example, forming a C corp places shareholders at risk for double taxation. C corps must pay taxes on any profits earned, and individual shareholders must pay income tax on the dividends they receive from the corporation.
By contrast, S corps do not pose any double taxation risks, but you must meet several requirements before doing business as an S corporation. Examples of these requirements include:
- Must have 100 or fewer shareholders
- Must operate domestically only
- Must not have any nonresident alien shareholders
- Must only offer one class of stock
As you can see, it takes many decisions to open and operate a business successfully. Rushing through these decisions is typically a mistake. Instead, learn more about the many structuring options for business organizations in Arizona. Partnering with an experienced legal advocate is also beneficial for most.