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How to Choose the Method of Incorporation

Corporations are mainly started to protect assets of individual owners and to allow for multiple owners. They are also chosen because stock can be sold to further grow the business. The three methods to incorporate are General, Closed and S Corporation, and a similar type of business structure called a Limited Liability Company (LLC)

Choose an S Corporation if you want to prevent "double taxation" and if you qualify. In the two other types of corporations, when the corporation makes a profit they must pay tax on that profit, and when money is paid out to the shareholders, the shareholders must pay personal tax on that income. The S Corporation prevents this "double taxation" and only pays taxes on the shareholders personal tax returns. Many small businesses opt for this structure. There are several limitations on what types of businesses can select this structure, such as a limit of 75 shareholders.

Choose a C Corporation, also known as a Closed Corporation, if you are limited to 30 to 50 stockholders. It is a mix of owners who run and manage the business, and owners who have limited involvement.

Choose a Limited Liability Company if you want the protection of a corporation, but the flexibility of less legalities. Although it is not considered a corporation because the company does not hold stock, but becoming a popular business structure. It allows the pass-through taxation like the S corp, with less rules on how to manage and structure. It also provides protection against the owners personal assets, like corporations.

Choose a general corporation structure if you are a large company that plans to have a large amount of stockholders. These companies often sell their stock on the open market.

Difficulty: Moderately Easy

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