For Profit Corporations

Corporations in General:

Corporations law in most states will require formal annual business meetings, annual corporate filings, and strict record-keeping as to election of officers, corporate finances and other corporate matters. When stock is offered for sale by the corporation, additional Federal and State laws may govern.

Corporate formation greatly enhances protection to personal assets from exposure to lawsuits. However, if a company fails to comply with the above-mentioned requirements, this protection may be defeated.  If a lawsuit is filed against your corporate entity, opposing counsel may request the Court declare personal assets of the owner(s) be available for seizure should you lose the case.  When personal assets are exposed, this is known as “piercing the corporate veil.” This is often accomplished by proving the corporate entity in question failed to follow the usual compliance imposed by law.  That is, to hold proper annual corporate meetings, maintain proper corporate records, maintain records of annual elections, maintain accurate share transfer records, and maintain accurate financial records.  The above scenario has greatly increased the popularity of the Limited Liability Company (LLC), which requires very few such requirements, and moreover, information as to the financial and ownership affairs of an LLC are not as readily available to the curious.

"S" Corporations vs. "C" Corporations:

The main difference between a “C” Corporation and an “S” Corporation is basically the means of taxation. A small business corporation which files a timely election will be eligible for federal income tax treatment as an “S” Corporation.  This is a clear advantage as the corporation itself will not pay taxes, but rather, tax liability will pass directly to the shareholders.  Contrast this with the tax obligations of a regular “C” Corporation, in which first the Corporation pays taxes, then income passing to shareholders (dividends or salary, if applicable) is taxed as individual income on individual tax returns (often referred to as “double taxation”).

The fact that “S” Corporations can often pass losses on to their stockholders is an advantage of “S” Corporations.  However, the number of shareholders is limited in an “S” Corporation, and corporate stock cannot be sold freely to the public. Additional factors and exceptions (often complex) should be considered and discussed with your CPA.

Statutory Close Corporation:

Statutory Close (or Closely Held) Corporations also afford liability protection while reducing the effort necessary to comply with legal and regulatory requirements. This is a Georgia category of corporation intended for cases where the number of stockholders is limited (for example, to a few family members) and stock generally will not be transferred. A Close Corporation must meet specific statutory criteria and may elect “S” Corporation status.

Consult a qualified Certified Public Accountant with any questions about business entity taxation or what type of business entity is best for your particular tax situation.