A corporation is an authority or a body that is formed with the purpose to function as a business. This has the full right of the administrative matters like the salary, staff, provident fund to staff, etc. It is the section step based on the preliminary function of incorporation.
Corporation vs Incorporation
Learn about a corporation, incorporation, and the difference between them below.
What is Corporation?
An entity that is formed with the purpose of carrying out business activities and any kind of governing is a corporation. There are many types of corporations, like charity corporations, that look after the operations of a charitable organization, business corporations that conduct business activities, and sports corporations that govern or supervise sports clubs.
In other words, every business establishment, governing group, or large organization is a corporation. For example, Google, Toyota, Apple, and Tesla are large business corporations known globally. It is constituted when one or more stockholders combine their resources to fund a common objective.
Types of corporation
There are basically four types of corporations: C corps, S corps, LLCs, and nonprofits. But there are other types of structure that can suit your company. Let us take a look at them:
- S Corporations – This is a business entity that gets almost all of the funds through the shareholders. All the finances are passed to the shareholders, some of which include the losses, income, credits, and tax deductions. S corporations are taxed like partnerships by passing all of its finances to the shareholders. But they also gain additional corporate perks.
- C Corporations – C corporations are a bit similar to S corporations in the way that C corps can be an LLC, corporation, or partnership. Unlike S corps, a C corp can have any number of stakeholders. They are also privileged to certain tax benefits, in which the business profits are taxed separately from the owners’ profits. This means that the shareholders in a C corp can also be the employees of the business itself.
- Non-profits Corporations – Similar to traditional corporations, a non-profit has the same structure with a board of directors, financial backers, and donors. But as the name suggests, the corporation does not generate profits. This type of corporation is established for a certain public cause, especially for the members of the non-profit. Non-profit corporations do not have to pay tax as they are exempted from federal and corporate taxes.
- LLC – A limited liability corporation also known as a limited liability company is a business entity that separates the business from the owners. This separates the owners’ liability from the company, protecting the owner’s assets from any financial damage in case of a lawsuit.
- Sole proprietorships – One of the other types of corporations is the sole proprietorship. A sole proprietor is a company owned by one person. No legal separation between the proprietor and the company exists, and he is fully liable for any lawsuits, debts, or financial damage.
- Partnerships – A partnership is similar to a limited liability company as the members can decide on a structure they see fit for the company. But in a partnership, all of the assets, losses, profits, and legal obligations are shared in the proportion of ownership. All the owners are liable personally for any financial damages or losses in proportion to their ownership.
What is Incorporation?
The process of incorporation is the process of forming or creating a company. All the organizers who want to form the corporation will be required to file the articles of organization with the state office. This is similar to a birth certificate of a company. It will include the name of the company (it should be unique and not the same as any other existing corporation). This is to prevent any case of misleading potential customers or investors. Other provisions in the articles will state:
- The lifespan of the corporation (it can be indefinite)
- The business address
- Description of the activities the business will perform
- Attestation stating that the purpose of the company is adhering to all the laws.
When the articles of organization are filed, the corporation will be formed. The only exception to this is if the article specifies an effective date of formation.
How to incorporate C Corp and S Corp?
C corp: You can not form a C or S corporation; you will form a corporation. This is done by filing your articles of incorporation with the state and paying the filing fees. You will have to choose a unique name before doing so and also select a registered agent. These details should be mentioned in the articles clearly. After the article is filed, there are additional requirements that you will have to complete. Some of these are holding the first shareholder meeting, issuing shares to owners, and adopting bylaws.
S corp: After you have filed the articles and formed a corporation, you will then file Form 2553 with the IRS. This is if you want your company to be taxed under Subchapter S. The IRS instructions state that an election be done within the current tax year if Form 2553 is filed and completed. Usually, the election is done after 15 days of the 3rd month. But it should be done before the end of the tax year unless you can prove that the failure to file it on time was reasonable.
What’s the Difference Between Corporation and Incorporation?
Corporations and incorporations have the same legal structure, compliance rules, limited liability, and tax structure. You can not change the abbreviations Inc. or Corp. interchangeably after you have registered your company with one in the legal documents. Each of the abbreviations and terms describes business organizations that have been imparted their charters. This recognizes the company as its own legal entity that has its own privileges and liabilities, which are different from those of the members. The main difference is that a corporation is an authority or body that is formed to conduct business activities, and incorporation is the legal process of setting up a corporation.
Need Any Assistance in Forming Your Corporation or Incorporating Your Business?
Incorporation can be a complex process if you do not have adequate knowledge about the process. It is best to hire professionals to help you to adhere to the laws while incorporating your business. IncParadise is one of the leading service providers in the USA and can help you to incorporate your corporation. You can also hire IncParadise as your registered agent.