What is a corporation ?

• It turns the company into a legal entity , from which investors can purchase shares as proof of ownership .
• This legal entity protects owners as they are not liable for corporation's actions.
• Most preferred corporation for US investors : Delaware C
• Most preferred for Australia ? ^3f47e9

The [[Shareholders]] elect a board of directors , who will represent their interest .

Advantages

1. Easiest way to raise capital in large amounts , from multiple investors
2. Liable only to the invested amount
3. Safe from corporation's debt
4. Shares available for easy investing and trading
5. Classes of stocks are available to easily facilitate varying levels of investors
6. [[Shareholders]] can sell or buy shares without any permission , unless they agreed to certain restrictions during the time of purchase

Disadvantages

1. [[Board of directors]] make all decisions of the company
2. More paperwork , more legal involvement
3. Working costs are higher
4. Double tax - one paid by the corporate and the other paid as income tax for the shareholder's profits
5. Profit sharing is not a given , as in partnerships. The profits are automatically funded back into the corporation as capital , unless the [[Board of directors]] decides to pay dividends to the shareholders.
6. Since all shareholders are have equal claims within a class , it is difficult to provide more incentive to special keypersons This is easier in the previous organizations due to customized agreements
   • But the corporation can make special compensation arrangements for key executives , this may require legal help

Types

S Corporation

= [[Taxed like a partnership (no corporate tax)]] , but [[Shareholders]] have to pay tax for their share of company profits even though that profit is not distributed as cash( dividend might or might not be issued) + Limited liability of corporations

• Advantages :
  1. No corporate tax
  2. Maintains limited liability
• Disadvantages :
  1. Shareholders pay a lot of tax , even though actual cash doesn't reach their hand.
  2. Retirement and fringe benefits paid to [[Shareholders]] cannot be accounted as deductible expenses
  3. Limitation on number of shareholders
  4. Limited to a single [[stock]] class - restricts multiple financing
  5. Not attractive to [[VC]] investors

#question : why would anyone want to go for this ? What does this mean overall ? Instead of the corporation paying taxes as a while , the tax is borne by the individual shareholder ?

i think major reason why one would go for this type , is if corporate tax would be very high in the long run , i.e the company is highly profitable and doesn't need extensive funding involving VC rounds.

C Corporation

Advantages

1. No tax burden on shareholders
2. Very attractive for [[VC]] investors due to the secure structure in place

Disadvantages

1. Requires formal structure
2. Annual board meetings + recording of minutes
3. Corporate tax