- The corporate form offers simple means for raising additional capital.
- From a legal standpoint, a Corporation is a separate legal entity from its owners, and it can be used to hold property in its own name.
- The owners of a Corporation are shareholders; the extent of their liability is the assets that they contribute to the Corporation, even in the event of the Corporation filing for bankruptcy.
- Requires strict adherence of many corporate formalities, necessitating greater administrative expenses than non-corporate forms.
- Corporations may use a fiscal year instead of the calendar year for tax purposes.
- The Corporation is double taxed, meaning that the Corporation is taxed on corporate earnings, and shareholders are taxed on income from dividends.
- Interest paid from debts is tax deductible.
- Equity capitalization (dividends) are subject to tax at the dividend rate.
- Losses of the corporation are deductible at the corporate tax level, but are not passed through to individual shareholders.
- Corporations may deduct a “reasonable compensation” to shareholders/employees from their income for tax purposes.
- Bottom Line: The corporate form allows for the perpetual operation of business, for multiple, uncomplicated, transfers of ownership, and the issuance of stock options provides incentives for attracting and rewarding employees.
This checklist is not intended to be legal or tax advice. Formeller & Formeller LLP’s Chicago startup attorneys have helped numerous clients form their businesses. Our skilled Chicago attorneys can help counsel you on entity choice, filing proper documents with the state, and drafting partnership agreements. Please contact our law firm today for a free legal consultation if you would like to discuss a new business venture or business ownership.
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