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C Corporation

A “C” corporation is the standard Massachusetts formed corporation. It is a seperate legal entity once it is formed, so it must file its own taxes and be responsible for its dealings. A “C” corporation can have unlimited numbers of shareholders, and those shareholders can be any kind of legal entity.

Corporations offer considerable personal asset protection potential but require annual maintenance to preserve the asset protection benefits. They require annual filings that the directors must maintain. A board of directors must be elected, annual meetings must be held, minutes of corporate meetings must be kept, stock must be issued. And all this applies even if you are the only shareholder in the corporation. If these formalities aren’t followed, you run the risk of losing your personal liability protection if a creditor trie to “pierce the corporate veil”.

Additionally, since corporations are taxed on their income and shareholders have to claim dividends as taxable income themselves, shareholders of a “C” corporation are “double taxed” on their dividend income. One way to avoid this is to not issue dividends and simply re-invest your income back in the company. Spending your income on items that are tax-deductible is another effective way. You could also look into forming an “S” corporation.

S Corporation

An “S” corporation is much like a “C” corporation in that it is also its own legal entity, protects its shareholders from legal liability, and requires a certain amount of yearly maintainance. However, an “S” corporation allows shareholders to claim their share of the corporation’s income directly on their personal tax return. This gets around the “double taxation” problem of a “C” corporation. The only drawback of an “S” corporation is that they are generally limited in the amount of shareholders. This makes going public with an “S” corporation practically impossible. However, if your intention is to keep your business relatively small, this is an excellent option.

For a checklist of items to do at your first corporate meeting, click here.

Click here to see our schedule of startup incorporation legal fees. Please feel free to contact us with any business law questions you may have or for an initial free consultation. To start your Incorporation, click here.

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