Those in the metro Detroit area who own a business and wish to incorporate it should be aware that there are different types of corporations to choose from. It is important to understand the advantages and disadvantages of each, so you can make decisions that are in your best interests and the best interests of your business.

C corporation

A C corp may be the type of corporation a person initially thinks of when they think of corporations. It is a legal entity that is separate from its owners, meaning that the owners are protected from the debts and liabilities of the corporation. A C corp makes its own profits and is subject to taxation, sometimes twice. However, those who own a C corp will have to keep extensive records, operational processes and they will have to meet state reporting requirements. Unlike other business structures, if a shareholder leaves the corporation or sells their stocks in the company, the corporation continues operating as before.

S corporation

An S corp may be a desirable choice if you wish to avoid the double taxation C corps are subject to. In an S corp, profits and certain losses pass through to the business owners’ personal income, and thus do not have to pay corporate taxes. However, S corps are generally still taxed at the state level, and shareholders will also be taxed. In addition with registering with the state, S corps must also register with the Internal Revenue Service (IRS). In addition, S corps are limited to 100 shareholders who must all be citizens of the United States. Like C corps there are also strict filing and operational processes that S corps must adhere to.

B corporations

B corps (benefit corporation) are for-profit businesses. They differ from traditional C corps in their purpose, accountability requirements and transparency requirements.  B corps must produce a public benefit as well as make a profit. In some states, B corps must submit an annual report outlining the benefit they brought to the public. However, B corps are taxed in the same way a C corp is.

These are only three types of corporations

These are three major types of corporations, but there are other types of corporations not covered in this post. Business owners in southeast Michigan wishing to incorporate will want to ensure they understand all their legal options, so they can make informed choices moving forward.