If you’re in the process of starting a business, one of the decisions you’ll make is whether to incorporate. You have several business structures to choose from, ranging from sole proprietorships to limited liability companies (LLCs) and partnerships to corporations. Each option has its benefits and drawbacks, and one type of business structure will work for one company but not another.
How you structure your business influences the taxes it pays, the costs of operation, and liability. An attorney can guide you through the process of choosing a business structure. If you want to form a corporation in the Greater Boston Area, an attorney can help you complete the necessary paperwork and understand how operating a Massachusetts corporation works. You should speak with an accountant or tax professional about the tax implications of the business structure you desire to utilize.
What Is a Corporation?
A corporation is its own legal entity. Many businesses are corporations, from large, multi-national conglomerates to small mom-and-pop organizations. Shareholders, or owners, establish a corporation to pursue a common goal. For many businesses, the goal is to earn a profit.
Once a corporation is established, it has many of the same rights as an individual person. Corporations can buy and own real estate, carry out business in Massachusetts or other states, and sue or be sued. They can also hire or appoint officers and determine how much compensation employees receive.
If you incorporate your business, you separate your personal assets from the organization’s. The corporation becomes liable for anything that goes on with the business. Incorporating protects the shareholders, as they generally can’t be sued for the corporation’s actions. If the corporation has numerous debts and can’t repay them, the shareholders generally aren’t personally liable for the company’s debts.
Corporations can issue shares, or stocks, to investors. That feature makes them more attractive to potential investors, as they can purchase a portion of the organization when they invest in it. Corporations can also issue stock options to employees, which can be an attractive perk.
While many corporation features make it ideal for certain businesses, the corporate structure also has some potential drawbacks.
Some company owners might be deterred by the time and expense involved in creating a corporation. To open a corporation in Massachusetts, you need to adopt bylaws, elect officers, and complete articles of incorporation. You also need to complete any necessary registrations. If applicable, you may need to create stock certificates and get the appropriate licenses.
What Are the Different Types of Corporations?
Just as there are multiple types of business structures in the U.S., there are multiple types of corporations. The type of corporation that’s right for your organization depends on its size and its mission. Corporation types include:
C Corp
A C corporation or C corp is the most prevalent type and is sometimes simply known as a corporation. It’s a legal entity separate from its owners or shareholders that can earn a profit, hold title to property in its name, and be held liable in litigation.
If you decide to form a C corp, you and the other shareholders have the most protection from personal liability because of the distance between the corporation and its owners. C corps are independent of their shareholders, so it’s relatively easy for a shareholder to sell their stake in the organization and move on without disrupting the flow and operation of the company. C corps can use the sale of stock to raise capital for the company.
S Corp
S corporations have some features in common with C corps. For example, they can have a stated purpose, need to register with the state, and can earn profits. However, there is one major difference — generally, an S corporation’s profits or losses pass through the company to the shareholders for tax purposes, which you should discuss with an accountant or tax professional.
B Corp
Massachusetts passed a law in 2012 that allows for the formation of Benefit corporations, or B corps. While B corps are for-profit entities, they also have a guiding mission beyond earning a profit.
Non-Profit Corporation
Non-profit corporations exist for a purpose other than earning a profit. They typically carry out literary, scientific, educational, religious, or charitable work. Non-profit corporations are tax-exempt but need to apply for that exemption from the Internal Revenue Service (IRS) and complete the required incorporation forms in Massachusetts.
Does Incorporating in Massachusetts Work for Your Business Goals?
Before you begin the process of incorporating your business, it’s worthwhile to reflect on whether a corporate structure is appropriate for your company’s goals. If you expect to retain full ownership of your business for the long term and aren’t concerned about liability, it might be advantageous to remain a sole proprietor.
But, if you want your company to stand on its own and to have its own legal existence, incorporation is often the way to go. Deciding to incorporate creates a clear legal boundary between an individual’s duties and liabilities and those of the company itself. If the company has difficulties, you don’t have to worry about losing your home or other assets to cover for the company.
If you see yourself passing on the business in the near future, forming a corporation also makes sense. When it’s time for you to part ways with the organization, you can sell your shares to other stakeholders or new investors and depart without causing too much of a rupture.
It can also be easier to get a company up and running after incorporation. Your corporation can apply for business credit cards and loans on its own, using its own credit history. It can also establish its own reputation, attracting investor interest and new customers.
Get Corporation Legal Help From Calabrese Law Associates
Business corporation law can be complex. While forming a corporation can be the ideal solution for your business, you want to make sure it’s the right choice before proceeding. The business law attorneys at Calabrese Law Associates can help you determine what business structure is best for your company. Our attorneys can also guide you through the incorporation process, helping you complete the required paperwork.
If you want corporation legal help in the Greater Boston Area, contact us today to schedule a consultation with one of our experienced attorneys.
This publication and its contents are not to be construed as legal advice nor a recommendation to you as to how to proceed. Please consult with a local licensed attorney directly before taking any action that could have legal consequences. This publication and its content do not create an attorney-client relationship and are being provided for general informational purposes only.
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