Regular Corporation

A corporation is an entity that, provided all the laws are complied with, is considered under the law as a "person" (both S and regular C corporations). A corporation is owned by its shareholders, and it is operated and run by its board of directors (both S and C corporations). The board of directors appoints the corporation's president, vice president, secretary, and treasurer. The most significant attribute of a corporation is its limited liability. That is, if a corporation is sued and all of the legal formalities have been complied with, the party suing can obtain only the assets of the corporation, he/she cannot obtain the assets of the shareholders.

The U.S. taxation of a corporation is a little more complex. There are special income tax rates applied to U.S. corporations. The range is 15% of the first $50,000.00; 25% of $50,000.00 to $75,000.00; 34% from $75,000.00 to $10,000,000.00 and 35% above $10,000,000.00.

A corporation is taxed by taking its income minus its expenses and then applying the tax rates. But, after the expenses are paid and there is extra money left, the owners (shareholders) of the corporation want to take the money out. If they are employees they can give themselves a bonus and the corporation will get a deduction for the bonus. However, if they are not and give themselves money from the after tax profits of the corporation it is considered a dividend. Dividends distributions are what is left over after the tax has been paid and is then distributed to the owners (shareholders) of the corporation. Unfortunately, the shareholders of the corporation must pay tax also on the dividends. So, the money has been taxed twice, first at the corporate level, then at the shareholder level!

One other important thing about "C" corporations, if you are a professional in the medical field, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting fields you are subject to a flat 35% tax on the net profit of the corporation!

Disclaimer: The information in these web pages has been prepared as a service to the community and does not constitute legal advice. This information may not apply to your situation particularly if you do not live in the state of California. Do not make legal decisions based on this material. Consult an attorney in person before making any important legal decision.