A corporation differs from partnerships (and sole proprietorships) in that a corporation is a separate legal entity. A corporation conducts its own business, is liable for its own debts and pays its own taxes. To form a corporation, you must file articles of incorporation with your local secretary of state's office, including the name of the corporation, a registered address, a registered agent for the corporation, by-laws and the number of shares of stock the corporation plans to issue.
Corporations have shareholders. Generally, the more shares of stock a person owns, the more control he or she will have over the corporation; however, shareholders do not typically run the day to day business of a corporation.
Shareholders determine who is elected to the board of directors, which hires officers and managers to run the corporation. The shareholders also vote on major issues that affect the company, including the corporation's by-laws, which set out rules for how certain aspects of the corporation will operate.
When it comes to taxation, a corporation can fall into one of two categories (both named after their respective chapters of the Internal Revenue Code). A "C" Corporation follows the standard corporate tax rules. Certain corporations can elect to be an "S" Corporation, which follow a different set of rules for tax purposes. Though an "S" Corporation is not a partnership, it will essentially be taxed like one-i.e. the corporation isn't taxed, but the shareholders are. There is a newer form of business entity known as a Limited Liability Corporation. An LLC is essentially a hybrid between a corporation and a partnership, providing the individual taxation of a partnership while affording the same protection from liability as a corporation.
Whatever entity you decide to use for your business, it is important to understand the standards, rules, benefits and drawbacks. The laws regarding corporations and partnerships vary from state to state. As previously stated, the type of entity you choose will determine your level of liability and tax responsibilities. It is important that you set up your partnership or corporation correctly. Otherwise, you could expose yourself to unforeseen liability.
An attorney can help you decide which business form is right for you and help you set it up. The decision to run your business as
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