As the most secure business entity, corporations offer flexibility and advantages that often make them more attractive than other business structures.

Under the law, a corporation has rights of its own. Stockholders, who are owners or partial owners of the business, are not legally responsible for the acts of the corporation. The corporation is considered a citizen of the state in which it was created and exists as a separate entity or person. As the owner, you may live anywhere you choose; it is the corporation's state of residence that governs the requirements for the business.

The two most common types of corporations are C Corporations and S Corporations, and the requirements and benefits for each vary from state to state. You should consult an accountant before determining the most appropriate structure for your business. But the following offers some general information about each type to help you understand the basic differences between them.

C Corporations

In most instances, C corporations offer more protection and options for business owners. They usually pay less in taxes than individuals, and there are no limitations on shareholders (they may live anywhere in the world and be any type of entity). There are also fewer requirements for a C Corporation than for an S Corporation, which gives you options to achieve the level of privacy and protection you need.

This structure limits the liability of the corporation's owners,officers and directors. Profits are taxed at corporate rates separately from an individual return, and profits from the business may be retained as earnings.

S Corporations

An S Corporation limits the liability of its owners, officers and directors. It must be formed in the U.S.A. and have no more than 75 shareholders. Only individuals, estates or certain trusts may serve as shareholders, and they may not be of non-resident alien status. An S Corporation may offer only one class of stock and must be a small business. State statutory restrictions, which limit the transfer of shares/ownership of the company, also apply to S Corporations.

This business structure may be approriate for you if you expect your business to incur start-up losses during the first few years of operation. If you have no intent of going public in the future and do not expect to offer multiple classes of stock, the structure may work well for your enterprise. Other instances in which an S Corporation may be appropriate include owners who live in a state with no personal state income tax, those who are subject to the alternative minimum tax, and enterprises who anticipate sales of less than $250,000 per year.