Share on Facebook
Share on Twitter
Share on LinkedIn
By Sanjeev Kumar
Founding Attorney

Selecting a business structure is one of the most important steps that an entrepreneur takes when beginning a business. Because the type of business structure chosen for the company impacts many important aspects of operating a business, many individuals and groups seek the advice of a Texas business law lawyer. An attorney can help you evaluate your company’s needs and goals to determine which business structure best meets your needs.

Why is a Business Structure Important?

The type of entity you choose for your business impacts many of your day-to-day operations. Some of the areas directly influenced by the type of business structure you choose for your company include, but are not limited to:

  • The amount and type of taxes paid by the company;
  • Your personal risk level;
  • The ability to raise capital;
  • The ease of adding additional owners or selling a portion of the company;
  • The paperwork required to comply with state and federal laws;
  • The number and types of owners permitted; and,
  • Your ability to control future operations and decisions.
  • You should choose a business structure that gives you the most benefits while offering the flexibility and control you desire.

Why Would I Want to Choose a Corporation for My Business Structure?

Many entrepreneurs choose a corporation for their business entity. While corporations may have stricter reporting requirements and require additional paperwork, corporations offer the highest level of property from personal liability.

Some of the advantages and disadvantages of choosing a corporation as the business structure for your company include:

  • Protection from personal legal liability because the business is a separate entity
  • The ability to issue stock certificates can make it easier to attract investors
  • Highly defined management and operational structure
  • The process to incorporate can be more time-consuming and costly compared to forming other business entities
  • The company must follow corporate formalities to retain the separation between the company and investors, stockholders, officers, and managers
  • The profits of a corporation may be subject to double taxation of profits
  • The company can offer stock options and stock benefits to attract employees
  • The corporation can exist forever, even though the founder or founders leave or die
  • Flexibility may be decreased based on government regulations depending on the type of business being conducted

In addition to weighing the general pros and cons for a corporation, you may also want to consider the differences between a C Corp and an S Corp. They both have some of the same advantages enjoyed by a corporation, but an S Corporation may be more appealing for some business owners.

C Corporations vs. S Corporations

All corporations begin as C Corporations (C Corp). You must file additional forms to elect to become an S Corporation (S Corp). An S Corp and C Corp share many of the same characteristics, but have three distinct differences that can significantly impact your decisions regarding which type of corporation you choose for your company.

  • Taxation — One of the biggest advantages of choosing an S Corp is to save taxes. C Corps are taxed on their profits. The business must pay corporate taxes. Any dividends paid to stockholders are taxed on their individual tax returns. However, an S Corp is treated as a pass-through tax entity. The S Corp does not pay taxes on its profits. The profits from the business as distributed to the shareholders who include the profits on their individual tax returns as income.
  • Fringe Benefits — If a C Corp pays benefits for employees who are shareholders, such as life and health insurance, the benefits are typically
    About the Author
    Sanjeev Kumar is the founder and principal at the Kumar Law Firm, which provides a wide range of legal services to entrepreneurs and business owners in the area of business & corporate law and intellectual property along with related areas of interest to clients such as business succession planning, wealth preservation through estate planning, and alternate dispute resolution.