A business becomes a “corporation” after a short document called the “Articles of Incorporation” is filed with the Secretary of State.
A main reason for structuring a business as a corporation is for the liability protection of one’s personal assets. If the business does not succeed, an investor risks only his investment—and creditors may not come after him personally for the debt or liabilities.
Another reason is for the tax benefits. A corporation may be taxed either as a “C Corporation” or as an “S Corporation.” The C Corporation profits are subject to the so-called “double tax” regimen: first as corporate income, and then again when it is distributed, this time to the recipient. However, in certain cases, by shifting income, a double tax regimen may result in overall lower tax liability.
In other cases it is preferable for a corporation to avoid the double tax regimen by electing with the IRS to be taxed as an S Corporation. This allows the corporation to be taxed once—like a partnership, where only the owners, not the corporation, pay tax (at individual tax rates) on the profits.
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