The stockholders of a corporation enjoy the benefit of limited liability. Generally, this means that their personal assets are protected against the claims of creditors of the corporation.
Corporations are audited less frequently by the IRS than Sole Proprietorships.
Both the C-Corporation and the S-Corporation are a business structure in which there are individuals that contribute money and or property in exchange for an ownership interest in the corporation. These individuals are referred to as "Stockholders" of the corporation. The stockholders percentage of ownership interest is represented by the number of shares of stock held by each stockholder.
The primary difference between a C-Corporation and an S-Corporation is in the way they are taxed for federal tax purposes.
The issue of whether or not to conduct business as a C-Corporation vs. S-Corporation has come up time and time again. The C-Corporation is a separate entity for tax purposes. This means that a C-Corporation pays taxes (at the corporate rates) as a business entity separate and distinct from the individual stockholders. This is what is referred to as being taxed at the corporation level vs. being taxed at the individual stockholder level. In addition, the distribution of income of a C-Corporation can be subjected to double taxation. This can be avoided by electing S- Corporation Status.
The Internal Revenue Service as well as many states, allow the stockholders of a C-Corporation to elect to be taxed as an S-Corporation. The profit or loss of the S-Corporation flows through to the individual stockholders in proportion with their ownership interest in the S-Corporation. This is what is referred to as a "flow through entity". Therefore the S-Corp generally does not pay its own taxes. The stockholders pay the tax on their proportionate share of the corporate profits at the individual rates as opposed to the corporate rates.
So why bother with an S-Corp? Because you can avoid the double taxation. In addition, not only do the profits flow through to the stockholders, but the losses can also. With limitations, the losses can flow through to the stockholders personal income tax return and be used against other income, i.e. Wages.
Corporation formation requires filing the appropriate "Articles of Incorporation" with the Secretary of State (SOS).
The Articles of Incorporation requirements vary from state to state.
The corporate name must be distinguishable from the name of any other LLC, corporation, limited partnership, or company incorporated, organized or authorized to transact business, in that State.
The specific state fees must be paid to the state before the corporate filing will be accepted by that state.
Depending upon the state, and the type of corporation, there are unique procedures along with accompanying cover letters, and specific documentation required to be submitted.