Info about Incorporation

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Advantages of S Corporations

In the United States corporate entities can assume different structures. Though the laws governing formation of corporations are dependent on state statutes, the corporate taxation is in the purview of the federal government. The corporate structures you can form are a C Corporation and an S Corporation. Though both have basically the same procedural formalities in forming and operations, the taxation is different. C Corporation is subject to corporate taxes. Profits or income of a C Corporation are taxed directly and when the residual profits are distributed among the share holders as dividend they have to declare it as income in their personal tax returns and pay tax if applicable. Essentially C Corporation profits are subject to double taxation.

One advantage in forming an S Corporation is the taxation. S Corporations have a pass- through taxation benefit as that of partnership or sole proprietorship. The share holders of an S Corporation can report the profits pro-rated in their personal tax returns and pay tax if applicable. No double taxation as in a C Corporation. However, forming an S Corporation has some limitations when compared to a C Corporation. Share holders of C Corporation can be any one, even an alien or a foreign corporation. Whereas, the shareholders in an S Corporation can only be natural US citizens. The maximum number of shareholders in an S Corporation is limited to 100, no such limitation in a C Corporation. Forming an LLC partnership also offer the same pass through taxation benefit as that of an S Corporation.

Corporate seals are no more a legal necessity. You may use a rubber corporate seal stamp to lend a look of authenticity to the corporate documents or instruments. The credibility of a corporate seal stamp is limited to that of your company logo or trademarks. Some states do refer to corporate seals in their statutes but none states it as mandatory.