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Entrepreneurs have several important decisions to make when beginning their business. The choice of a business entity for their company is an extremely important decision because it impacts several areas of business, including raising capital, taxation, and owner liability. A business entity that many Mentor Ohio startups consider is a corporation. An experienced Corporation Attorney can help!
What is a Corporation?
A corporation is a legal entity that stands separate and apart from its owners. Owners are referred to as shareholders. Their interest in the business is defined and limited by the type and number of shares they own. A Board of Directors elected by the shareholders manages the company. The Board of Directors hires officers who oversee the day-to-day operations of the company.
Because a corporation is a legal entity, it can own and sell property, enter contracts, file lawsuits or be sued, and perform other business transactions in its name. It is taxed as a legal entity and must file corporate tax returns.
Corporations are formed under state laws by filing Articles of Incorporation. If a corporation wishes to operate within another state, the corporation files a request for authorization to operate within that state. This situation is common for large corporations who have a “home office” in one state but build factories, operate retail locations, or open offices in other states.
Stocks in a public corporation are available for purchase on the open market through a stock exchange. A private or closely held corporation’s stock is not available for purchase on the open market.
There are several different types of corporations that a company can choose from when incorporating, such as a C Corporation, S Corporation, Nonprofit Corporation, Statutory Close Corporation, and a Professional Corporation. The type of corporation a company chooses depends on the company’s needs, goals, and business type.
Pros and Cons of Choosing A Corporation for Your Business Entity in Ohio
As with other business entities, there are benefits and disadvantages associated with choosing a corporation as a business entity.
One of the biggest advantages of using a corporation for a business entity is the limitation of personal liability for owners. Stockholders are not personally liable for business debts or obligations. Their liability is limited to their investment in purchasing and owning the stock certificates.
Other benefits of a corporation include:
- The company can exist forever. If a founder dies, the company continues without interruption.
- It is easier to raise capital because of the various options for issuing and selling stocks. Also, the corporation can apply for and qualify for loans in its name. It is not dependent upon the credit ratings of its shareholders.
- Corporations have a clearly defined structure, which can help with day-to-day operations.
- Transferring ownership is as simple as signing over the stock certificates to another owner; however, privately held corporations and S Corps can be more difficult.
Even though there are many advantages associated with a corporate entity, there are also some disadvantages of choosing a corporation when forming a company. Some disadvantages of corporations include:
- Corporations are more costly and time-consuming to form and operate.
- Corporate formalities must be carefully followed to preserve liability protection for stockholders. There is a lot of extra paperwork involved in operating a corporation. Formalities include holding shareholder meetings, keeping detailed corporate records, holding meetings for the Board of Directors, and maintaining complete separation between the company and personal finances.
- Profits from corporations are taxed twice. Corporations are required to file corporate tax returns to pay taxes on profits. Shareholders then pay personal income taxes on any dividends they receive from the company. Choosing an S Corp status with the IRS can eliminate double taxation, but S Corps have special rules and restrictions that might not be suitable for all companies.
- Some corporations are subject to heavy government regulations and restrictions.
Is a Corporation the Best Business Entity for Your Mentor Startup?
Many startups begin as sole proprietorships, partnerships, or LLCs. However, as they grow, they find that they need a more formal business structure for their company, especially if they want to take their company public.
Deciding whether a corporation is right for your company can be a challenging decision. Having the assistance of a corporation attorney can help you make the right decision for your company.
Contact a Corporation Lawyer in Mentor OH for Assistance
If you have questions about business formation, contact Corporation Attorney Heather Moseman to schedule a consultation by calling (440) 255-0832 or by completing the contact form on our website.
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Corporation Attorney Mentor, OH
Moseman Law Office
Moseman Law Office is a full-service legal firm located in Mentor, Ohio, serving nearby counties, and providing personalized legal solutions to its clients.
Moseman Law Office
8500 Station St., Ste 210
Mentor, OH 44060
Phone: (440) 255-0832