FAQ: Corporations
What is a corporation?
A business corporation is a legal entity that is separate from the individuals who compose it. Corporations generally have perpetual existence (no fixed date for dissolution) and limited liability (the shareholders are not personally liable for the liabilities of the corporation).
How are corporations formed?
The incorporators determine the structure, function and purpose of a corporation. The incorporators then sign a Certificate of Incorporation and file it with the Department of State. The incorporators must also adopt bylaws for the corporation and a board of directors to manage it. The bylaws will provide for when elections would then be held so that shareholders could elect the board of directors.
What information must be included in the Certificate of Incorporation?
The Certificate of Incorporation must include the corporation’s name, the purposes of the corporation, the county where the corporation is located, the stock structure of the corporation and the names and signatures of the incorporators as well as the filer. All of this should be determined by the incorporators before filing with the Department of State.
Is there a filing fee for a Corporation?
Yes. New York State requires a $125 filing fee as well as the applicable tax on the shares of the corporation. The amount of the tax is determined by the number and value of the shares.
What is the difference between a C corporation and an S corporation?
The main difference between a C corporation and an S corporation are the way they are taxed. A C corporation, the default designation, generally is subject to double taxation, in that the corporation must pay a corporate tax and the shareholders must then pay taxes on the profits distributed to them. An S corporation is a flow through entity so the shareholders only pay taxes on profits “passed through” to them. Another difference is that S corporations cannot have more than 100 shareholders, whereas a C corporation has no such limit.
How are corporations taxed?
Corporations must pay franchise taxes and file franchise tax reports annually even if no business is conducted or income collected. S corporations must also file a corporate tax return even though the shareholders are usually the only ones who pay taxes.
The answer to this question depends on your individual business goals. Generally, corporations are the better choice if you are looking to attract investors, especially venture capitalists. Corporations are usually also the better choice for business with numerous employees. There are many factors to consider so to ensure that you are making the right choice, consult an expert with whom you can go over your business plan and goals.