What Is a Corporation? - Incfile

One of the most important decisions new business owners must make is what kind of business entity they want to form. While there aren’t an overwhelming number of options, the one you choose will have major implications for your business.

If you’re getting ready to select a business entity, you might be wondering — what is a corporation?

We’re here to shed some light on what corporations are and how they operate, so you can make the right choice for your business.

First, corporations are business entities that have gone through the incorporation process. They can be an S Corp, a C Corp, or a nonprofit. But it’s also important to understand what corporations are NOT. They are not LLCs, and they are not sole proprietorships.

A corporation is a legal business entity that offers liability protection to the owner or owners. Corporations also have a lot of requirements that impact the way you manage your finances, file taxes, and grow the business.

Let’s look at the types of corporations:

S Corp

An S Corp is generally used for smaller businesses. It has pass-through taxation, similar to an LLC, and could result in big savings for your business. It does come with limitations though, like only allowing 100 or fewer shareholders that are U.S. citizens only, and compliance requirements that could lead to having your S Corp status revoked.

C Corp

C Corps are generally used by larger businesses. Owners can issue stock, which makes financing a C Corp easier than other business entities. Stock can also be bought or sold to the public. However, C Corps have a much more complex structure with more regulations and requirements and can be subject to double taxation.

Nonprofit

A nonprofit, or 501(c)(3), is a corporation that does not operate solely to generate income. It is exempt from federal, sales and property tax. It must be designed to achieve a goal for the public benefit, and it must meet strict compliance requirements. All profits earned should be used to support and expand the nonprofit.

If you still aren’t sure a corporation is right for you, Incfile is here to help. Our business entity comparison and guides will help you make the right choice for your business.

Incfile’s Business Business Entity Comparison: https://www.incfile.com/business-entity-comparison

Business Entity Quiz: https://www.incfile.com/business-entity-quiz