Your business in Michigan may have seen considerable success over the years and you may be looking to the next step in growing your business: incorporation. The following is a brief overview of basic C corporations and S corporations.
What is a C corporation?
In general, basic corporations are referred to as C corps. C corps, for legal purposes, are entities that are entirely separate from their owners. Therefore, the corporation can make a profit, pay taxes and be held legally liable. However, the costs of forming a corporation can be more expensive than other business types. Corporations also must keep certain records, operational processes and reporting requirements per state law. In addition, corporations face double taxation — once when they make a profit and again when they pay dividends.
What is an S corporation?
S corporation are a type of corporation that addresses the issue of double taxation that C corps are subjected to. In an S corp, profits and certain losses are passed directly to the shareholders’ personal income and are not subjected to corporate tax rates. In addition to registering with the state, S corps are also tasked with filing with the Internal Revenue Service. S corps are limited to 100 shareholders who all must be U.S. citizens.
Learn more about incorporation in Michigan
Incorporation is a big step for any business in Michigan to take. There are legal requirements that must be met when filing for incorporation along with reporting requirements. Ultimately, this post is for educational purposes only and does not contain legal advice. Those who want to learn more about incorporation or other business law topics are encouraged to explore our firm’s website for further information.