Your small business in Kentucky may have seen considerable financial success over time and you may be wondering what the next step is to grow your business as you move into the future. One option that may be worth considering is incorporating your business. The following is a brief overview of two common types of corporations.
A C corp is a standard corporation. Corporations are separate legal entities from their owners. This means that the corporation itself can make a profit, is taxable and can be held legally liable. This effectively shields the corporation’s owners from personal liability. There are state regulations that corporations must follow regarding record-keeping, operational processes and reporting.
Corporations are also subject to double taxation. They are first taxed on their profits and then are taxed a second time when dividends are paid to shareholders. Corporations can sell stock and if a shareholder exits the corporation or sells their shares the corporation continues operations as usual without having to be dissolved and reformed.
An S corp is a type of corporation that is designed to avoid being taxed twice. In an S corp profits and certain types of losses go directly to the owner’s personal income. This means that they are not subject to corporate tax rates. The shareholders of an S corp are taxed federally. S corps are limited to 100 shareholders all of whom must have U.S. citizenship. It is important to note that although Kentucky recognizes S corps, not every state in the nation does.
Learn more about incorporation
The decision to incorporate is one that takes careful thought and timing. But if the time is right, it might be worth considering. This post is for educational purposes only and does not contain legal advice. Our firm’s webpage on business law may be a useful resource for those thinking of incorporation.