Two types of incorporation are available to American businesspeople. The first one is an S-corporation, which has certain restrictions but offers excellent tax benefits. Next is a C-corporation, which offers greater flexibility, but it is subject to double-taxation. The differences between the two seem slight, however making the wrong choice can end up being a costly mistake for your business. Before you choose an incorporation type, you should evaluate your business to see which one will work best for you.
S-corporations work well for individuals with small to medium-sized operations. They can have multiple owners or shareholders, but this number cannot exceed 75. Businesses of this type are also exempt from self-employment tax, which works in favor of small businesses looking for a financial break. Managers and directors must pay self-employment tax on their salaries, but the remaining profits from the business, under this incorporation, are not subject to this tax at all.
C-corporations are great for companies that have a substantial amount of money to divide. Incorporation of this type can have unlimited shareholders as long as the shares are available to sell. The personal assets of the controllers and shareholders receive total protection under this incorporation. Controlling parties also have the freedom to distribute the company profits in any way within the boundaries of the law.
If you have a corporation and wish to expand overseas, you will need to re-incorporate your business through the entities offered in the country you plan to operate in. For example, if you plan to register an offshore company in the UK, you will need to find out the types of companies in the UK before you can do business legally. When registering a company in the UK, do so under the incorporation that closely relates to your U.S. entity. This will help you avoid confusion and keep you out of trouble with the authorities.
Some business owners may not believe in corporations since it is possible to operate without one. Although this is true, it is extremely risky and tax payments can be substantial. Always incorporate to give yourself the greatest amount of security. Making this choice is wiser than running a business with little or no legal protection.