Selecting a business structure is an important choice that can affect various aspects of your business. For example, if you wish to be shielded from liability for company actions, you would not choose to operate your business as a sole proprietorship. If you require assistance choosing a structure for your business, you should consult with an experienced Ellicott City business formation lawyer.
The Heyman Law Firm has an unwavering commitment to providing our clients with the representation needed to resolve their unique legal issues. We acknowledge the importance of selecting the proper business structure, and we can help you determine an appropriate choice for your business. To schedule a confidential legal consultation, contact the Heyman Law Firm at (410) 305-9287, or contact us online.
Types of Corporate Formation in Ellicott City, Maryland
A corporation is one type of business structure that could be selected by a potential business owner. In order to create a corporation, shareholders must secure capital stock in the company. Perhaps most importantly, corporations are entities that are separate from their owners. This means that the corporation itself will be held accountable for the actions of the corporation as opposed to shareholders or parties that created the corporation.
Corporations can also be difficult to manage. The owners of a corporation are required to file extensive records regarding the operational procedures of the corporation.
Corporations are also taxed in a manner that may be undesirable for business owners. Specifically, corporations must endure double taxation. Double taxation is when a corporation is taxed when profits are earned, and when dividends are distributed to shareholders.
Corporations are typically selected when the owner has a business plan that is considered medium or high-risk. The ability to raise capital through the sale of stock is a valuable tool under these circumstances. Additionally, if a business owner intends to make their business public, a corporation would be a desirable business structure.
S Corporations
S corporations, also known as S corps, are another type of corporate formation that is different from a traditional corporation or C corp. The most important difference between S corps and C corps is that S corps can be used to avoid double taxation and the corporate tax rate. Specifically, S corps permit profits and losses to pass-through to the personal income tax of the owners of the corporation.
While most corporations must register with the state of incorporation to incorporate properly, S corps are required to register with the Internal Revenue Service.
There are some restrictions on S corps that are not shared by C corps. For example, S corps are not permitted to have more than 100 shareholders at one time. Each shareholder must also be a United States citizen. If a shareholder decides they want to share their interest in the company, this normally will not affect the day-to-day operations of the S corp.
S corps are often a choice for owners that do not intend to make their company public.
B Corporation
Benefit corporations or B corporations are businesses that are dedicated to creating a public benefit while also turning a financial profit. Failure to uphold these goals could harm shareholders that have invested in the company. Additionally, while the purpose of B corps is different from that of a C corp, the two types of corporations are taxed similarly.
Nonprofit Corporations
Nonprofit corporations are created to provide some benefit upon society, whether it is charity-based, educational, scientific, or some other benefit. Unlike B corporations and many other corporation structures, nonprofit corporations enjoy tax-exempt status. This means under qualifying circumstances, a nonprofit corporation is not liable for state or federal taxes for earned financial profits.
Like S corps, nonprofit corporations must be registered with the IRS instead of the state of incorporation in order to receive tax-exempt status.
There are a number of regulations that nonprofit corporations must follow to ensure they can maintain their tax-exempt status. For example, nonprofits are not permitted to make contributions to political campaigns or provide members of the nonprofit with dividends.
To learn more about the type of corporate business structure that will benefit your company, continue reading and speak with an experienced Maryland business formation lawyer.
Selecting a Business Structure for Your Company
Various factors should be considered when selecting a business structure for your company. Weighing each factor against your needs will help determine what type of business entity will coincide with your goals.
One important factor to consider is how you want your business to be taxed. If you are content with double taxation and a corporate tax rate of 21%, you should consider establishing a corporation. However, if you would prefer pass-through taxation to claim profits and losses on your personal income tax, an S corp might be a preferred choice.
Another factor to consider is the level of liability the owners of the business wish to have. If you are not concerned about being liable for debts or lawsuits, you could operate your business as a sole proprietorship. Alternatively, if you wish to protect owners of the company, a limited liability company may be an appropriate choice.
There are many other factors to consider when selecting a business structure. Do not delay in speaking with our firm regarding your concerns.
Our Trusted Ellicott City Business Formation Attorneys are Ready to Represent You
If you are unsure about what business formation would benefit your company, you should contact an experienced Ellicott City business formation attorney today. At the Heyman Law Firm, our diligent business attorneys possess a wide range of experience handling a number of business issues, and we are here for you. To schedule a confidential legal consultation, contact the Heyman Law Firm at (410) 305-9287.