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There are a variety of corporation advantages that depend on the particular type of corporation. Most of these benefits have to do with tax breaks, such as lower tax rates, or, in some cases, the ability to pass income onto shareholders without the company being taxed. Each of these advantages has its pros and cons, though some types are only available in limited circumstances. There are also advantages to incorporating in particular states. There are also specific advantages to corporations set up to carry out a licensed profession, or set up on a non-profit basis.
C corporations are set up as completely separate entities from the individuals that operate them. This means the corporation remains intact even if the owner dies or leaves the company. These corporations also have lower tax rates up to a certain limit: as of 2010 this applied to the first $50,000 United States Dollars (USD) of income. Another advantage for smaller businesses is that business debts do not affect the owner's personal credit record. C corporations are also known as general corporations.
An S corporation is effectively a C corporation that has elected to be taxed in a particular manner. In this situation, the company's income is passed to shareholders without being taxed. Of course, the shareholders then have to pay personal tax on it, but this removes the situation with C corporation where both the company and personal incomes are taxes. Another advantage is that if the company makes a loss, this can be applied to the individuals and reduce or even wipe out their personal tax liabilities.
Professional corporations are those that carry out a business requiring a license to practice. This means benefiting from professional corporation advantages is an inevitability rather than a conscious business decision. The big advantage is that individual owners are not as exposed to personal liability relating to malpractice by other individuals working for the company.
A non-profit corporation is one that has a stated purpose other than purely making a profit. The major advantage is that the profits are usually not taxed. The profits must then be "reinvested" in meeting the stated aims of the corporation. Qualifying for non-profit tax status involves more extensive oversight and regulation.
Corporation advantages can vary widely from state to state. For example, Delaware has a reputation for being favorable to corporations, which is why the majority of US corporations are incorporated there. This is partly because it does not impose income tax on corporations incorporated in the state but operating elsewhere. Another advantage is that corporate law is well established in the state. This does not necessarily mean particular laws favor corporations, but rather than there is less uncertainty. Nevada also offers corporation advantages as its laws make it harder for people to sue the individuals behind the corporation.
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