by Brenden | Jan 11, 2023 | Business Law, Small Business
S-corporations and C-corporations are two different types of business structures that are recognized under U.S. federal tax law. Both types of corporations provide limited liability protection to their shareholders, which means that shareholders are not personally liable for the company’s debts and liabilities. However, there are some key differences between the two types of corporations that can have a significant impact on how the business is taxed and operated.
Differences between C-Corporations & S-Corporations
Taxes
One of the main differences between S-corporations and C-corporations is the way they are taxed. C-corporations are considered to be separate entities from their shareholders, and they are subject to corporate income tax on their profits. In contrast, S-corporations are considered to be “pass-through” entities, which means that the company’s profits are passed through to its shareholders and taxed at the individual level.
This pass-through taxation can be a significant advantage for S-corporations, as it can help to avoid the “double taxation” that can occur with C-corporations. For example, if a C-corporation earns $100,000 in profits, it would be taxed at the corporate level, leaving $70,000 after corporate taxes. If the company then distributes the remaining $70,000 to its shareholders as dividends, the shareholders would then have to pay personal income tax on those dividends. With an S-corporation, the $100,000 in profits would be passed through to the shareholders and taxed at the individual level, avoiding the additional corporate tax.
Shareholders
Another difference between S-corporations and C-corporations is the number of shareholders they can have. S-corporations are limited to 100 shareholders, while C-corporations can have an unlimited number of shareholders. This can be a significant consideration for companies that are planning to go public or that have a large number of investors.
There are also some restrictions on the types of shareholders that S-corporations can have. For example, S-corporations cannot have non-resident alien shareholders, and they cannot have more than one class of stock. This can limit the flexibility of the business in terms of raising capital and issuing stock options.
Management
In terms of flexibility and management, C-corporations can have a board of directors, while S-corporations cannot. However, S-corporations can have more flexibility in terms of profit distribution. Unlike C-corporations, S-corporations are not required to distribute profits equally among shareholders, and they can choose to retain profits in the business if they wish.
Complexity and Disadvantages
One of the main disadvantages of S-corporations is that they can be more complex to set up and maintain than other types of business structures, such as sole proprietorships or partnerships. They are also subject to more regulatory requirements, such as holding annual meetings and keeping detailed records of the company’s financial and operational activities.
C-corporations also have their own advantages and disadvantages. They are considered more stable and with more prestige. They can also raise capital more easily and attract more investors, but it comes with the trade-off of double taxation.
Choosing Which Corporation
In conclusion, whether to choose an S-corporation or C-corporation depends on the company’s specific needs and goals. S-corporations can be a good option for small businesses that want to avoid double taxation and have a relatively small number of shareholders. However, they may not be the best option for companies that are planning to go public or have a large number of shareholders, as they have restrictions on the number of shareholders and types of shareholders they can have. C-corporations, on the other hand, may be a better option for larger companies that plan to raise capital and have more flexibility in terms of profit distribution and management structure. It’s important to consider all aspects of each type of corporation, weigh the pros and cons, and seek legal advice to determine which structure best suits your business. Please call Brenden Kelley Law at 216-644-3359 so that we can assist you starting your business.
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by Brenden | Dec 30, 2022 | Business Law, Small Business
Starting a small business in Ohio can be a challenging but rewarding endeavor. One important aspect of running a small business is understanding the various types of contracts and agreements that you may encounter. These legal documents can help protect your interests, establish clear terms and conditions, and ensure that you are able to operate smoothly and efficiently.
Here are five common types of contracts and agreements that small businesses may encounter:
- Employment contracts: If you are hiring employees, it is important to have a written employment contract that outlines the terms and conditions of their employment. This can include details such as salary, benefits, job duties, and the duration of the employment relationship. Employment contracts can help protect both the employer and the employee by clearly defining the expectations and responsibilities of each party.
- Lease agreements: If you are renting a space for your business, you will need to enter into a lease agreement with the landlord. This document will outline the terms of your tenancy, including the duration of the lease, the amount of rent, and any other terms and conditions that apply. It is important to carefully review a lease agreement before signing to ensure that it meets the needs of your business.
- Service contracts: If you are providing a service to your customers, you may enter into a service contract that outlines the terms of the service being provided. This can include details such as the scope of the service, the payment terms, and any guarantees or warranties that apply. Service contracts can help protect both the provider and the customer by setting clear expectations and establishing a clear resolution process if there are any disputes.
- Supply contracts: If you are purchasing goods or materials from a supplier, you may enter into a supply contract that outlines the terms of the transaction. This can include details such as the quantity of goods being purchased, the price, and any delivery or payment terms. Supply contracts can help ensure that you receive the goods you need in a timely manner and at a fair price.
- Non-disclosure agreements (NDAs): If you are sharing confidential information with someone, you may want to enter into a non-disclosure agreement (NDA) to protect that information. NDAs can be used to prevent the disclosure of trade secrets, business plans, or other sensitive information.
Contact a lawyer before signing a contract.
It is important to carefully review any contract or agreement before signing to ensure that it meets the needs of your business and protects your interests. If you have any questions or concerns about a contract or agreement, it is a good idea to seek the advice of an attorney. Please call Brenden Kelley Law at 216-644-3359 so that we can assist you.
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by Brenden | Dec 1, 2022 | Business Law, Small Business
Opening your first business can be an exciting, yet complex and challenging endeavor.. There are many legal considerations to keep in mind, and it is important to have the right support and guidance to ensure that you are able to successfully launch and operate your business. One key element of this support is having a lawyer to help you navigate the legal landscape and protect your interests.
Here are some reasons why you may need a lawyer to start your small business in Ohio:
- Choosing the right business structure: One of the first decisions you will need to make when starting a small business is what type of business structure to use. Options include sole proprietorship, partnership, limited liability company (LLC), and corporation. Each type of business structure has its own advantages and disadvantages, and it is important to choose the one that is right for your business. A lawyer can help you understand the pros and cons of each option and advise you on the best choice for your business.
- Protecting your intellectual property: If you have developed a unique product or service, you will want to protect it from being copied or used without your permission. A lawyer can help you understand the various options for protecting your intellectual property, such as trademark, copyright, or patent protection. They can also assist with the process of registering your intellectual property and enforcing your rights.
- Drafting contracts and agreements: As a small business owner, you will likely enter into various contracts and agreements with employees, customers, suppliers, and other parties. It is important to have these documents carefully drafted to protect your interests and avoid disputes. A lawyer can help you understand the legal implications of these documents and ensure that they are written in a way that is clear and enforceable.
- Managing legal issues and disputes: Even if you take steps to protect your business, there is always the risk of legal disputes arising. A lawyer can help you navigate these issues and work to resolve them in a way that is favorable to your business. They can also represent you in court if necessary.
- Complying with regulations: There are many regulations that apply to small businesses in Ohio, including employment laws, tax laws, and health and safety regulations. A lawyer can help you understand your obligations under these laws and ensure that you are in compliance. This can help you avoid costly fines or legal action.
In short, having a lawyer to support you as you start your small business in Ohio can provide valuable guidance and protection as you navigate the legal landscape. Our firm has experience helping businesses get off the ground and make the right first steps. Please call Brenden Kelley Law at 216-644-3359 so that we can assist you and your business.
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