Corporations FAQ

Questions:

• What is a corporation?
• What is "limited liability" and why is it important?
• How are corporations different from partnerships, sole proprietorships, and LLCs?
• Who should form a corporation?
• How do I form a corporation?
• Does running a corporation involve more paperwork than running other types of businesses?
• How is corporate income taxed?
• What is double taxation? Does it mean that corporate income is taxed twice?
• What is a professional corporation?
• Do I need to worry about securities laws when I issue stock in my corporation?

Answer:

Does running a corporation involve more paperwork than running other types of businesses?

Yes. Corporations must comply with statutory rules that unincorporated businesses, such as limited liability companies (LLCs), partnerships, and sole proprietorships, do not. For instance, corporations must observe corporate formalities such as holding and taking minutes of annual shareholder and director meetings and documenting important decisions. Also, corporations must file and pay taxes on a separate corporate tax return and must set up a double-entry bookkeeping system to record business transactions, complete with daily journals and a general ledger.

To learn more about corporate paperwork, read Nolo's article Documenting Corporate Decisions.