We offer two types of incorporation at Incstat.com — the standard corporation and the Limited Liability Company (LLC). Though filing requirements for both types of incorporation differ from state-to-state, below are the basic elements in order for you to make an informed decision between the standard corporation and LLC.

Similarities

Both types of corporations are created through and governed by the state in which they are incorporated. They each offer limited liability to the owners for debts and liabilities of the business. The owners, officers, directors and managers are not required to be U.S. citizens. The number of owners is unlimited and not required to be individuals — owners may be people, corporations, partnerships or other LLCs. Lastly, both stocks and memberships may be divided into numerous classes.

The Standard Corporation

The standard corporation is viewed as an actual entity with rights and responsibilities, and has an unlimited business life. Raising capital is relatively easy through the sale of stocks. More rigid filing and reporting requirements exist for the standard corporation. Annual meetings of the shareholders and directors must be held, annual reports filed with the state, and meeting minutes kept with the corporation’s records.

Owners. Stockholders own the corporation. They purchase stock with money and/or property and may sell their stock (ownership) at will, without anyone’s consent. Their liability is limited to whatever they paid for the stock, unless they have agreed otherwise in writing or are found guilty of fraud. Additionally, the owners’ credit ratings do not affect the corporation.

Taxation. The standard corporation is a separate, taxable entity and taxed directly for profits and losses, which can lead to double taxation on dividends. The owners (as employees) enjoy many tax-free benefits: (1) their personal income tax liability is lowered, (2) their 15.3% self-employment tax liability is replaced by a 7.65% social security/medicare tax (the remaining 6.2% is paid by the corporation and a company tax deduction), and (3) their fringe benefits tax liability is reduced or eliminated.

Disadvantages. The biggest disadvantage to a standard corporation is its complexity, the record keeping requirements, and the extensive, rigid rules that govern it. Additionally, there are limitations on the activities of a corporate charter, and the double taxation on dividends.

Due to the time, expertise and cost of organizing and administering a standard corporation, we at Incstat.com recommend this form of incorporation for the medium-to-large sized business with attorneys and accountants already on the payroll.