"C" CORPORATION

DEFINITION
A corporation is a separate legal entity which exists apart from its owners.  It is sort of like its own person in that a corporation has all the legal rights of an individual and is responsible for its own debts.  It must also file income tax returns and pay taxes on income it derives from its operations.  Typically, the owners or shareholders of a corporation are protected from the liabilities of the business.  However, when a corporation is small and new, creditors often require personal guarantees of the owners before extending credit.

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 Forming a corporation is like creating a new "person" in the eyes of the law.  This person is a legal entity, separate and apart from its owners.  Just like you, it files its own income tax return, has its own tax number, owns property upon which it pays tax, can sue and be sued by others, and so forth.  In other words, it has many of the same rights and obligations as you.  But what is nice about the corporation is that it's not you.  Meaning your liability as an owner in this structure can be limited, unlike a sole proprietorship or partnership.

A corporation is managed through a Board of Directors who are elected by the shareholders.  The Board then selects the officers who will actually operate the business.  For a small business, most states allow one person to hold all of the required offices.  So this structure is even available for just one owner who wants to limit his or her obligations to some extent.

You may want to choose this structure for this very reason: to limit your personal liability and separate your personal belongings from the corporation's assets.  You may want to pass on this structure for several reasons.  First, it can be costly to form a corporation and difficult to operate.  Since it is separate from yourself, you will most likely be considered an owner and an employee to the corporation if you provide any services to the corporation itself.  This means that you must go through all the legal and tax procedures of setting up a system for employees even though there aren't any but you.  Also, most start-up businesses will have to personally secure bank loans through the owners themselves and still may be held liable as officers of the business if you experience any financial or legal problems.