A corporation is the most complex form of business organization, primarily because of the paperwork required to establish a corporation. Articles of Incorporation are not required by law to be prepared by an attorney. However, because of complex legal issues involved when starting any business, including tax considerations, it is advisable to seek legal counsel and professional tax advice before filing to ensure that all legal consequences and tax implications receive proper consideration.
Corporations limit liability to the amounts owners have contributed to shares of stock. Unlike some other types of business structures, corporations are not affected if an owner transfers shares or dies. Corporations require extensive record keeping, are closely regulated, have double taxation (since profits are taxed at the corporate level), and dividends paid to owners are taxed at the individual level. In forming a corporation, prospective shareholders transfer money and/or property for the corporation’s capital stock.
For taxing and income purposes, there are two types of corporations in Pennsylvania: C corporations and S corporations. The income and losses of each are determined using different rules. While C corporations follow federal income tax rules for determining income with some adjustments, corporations electing a Federal S status must use Pennsylvania personal income tax rules for determining income.