Starting a business is no small feat, and forming a Corporation is one of the most significant steps you can take toward achieving your goals as an entrepreneur. If you are thinking of starting a business in Arizona, it’s essential to understand the different types of corporation formations available to you under state law. In this blog post, we’ll be breaking down the various corporation forms in Arizona and what each entails, helping you make a more informed decision about your business venture.
A C-corporation is one of the most common and traditional forms of corporation formation in Arizona. It is a separate legal entity from the business owners, and it’s legally liable for debts and responsibilities. With a C-corporation, shareholders enjoy limited liability protections while still retaining the ability to earn profits and issue stocks through the sale of ownership shares. Additionally, C-corporations are most favorable in terms of raising funds or capital through ventures such as public funding.
An S-Corporation is another popular corporation form in Arizona that operates under a similar structure as a C-corporation, which also separates personal liability from business liability incurred during the course of the business. S-corporations, however, do not pay taxes as separate entities as C-corps do. Instead, the corporation’s profits and losses flow directly to the shareholders, who then handle the tax payments themselves. Furthermore, S-corporations must have no more than 100 shareholders and must be domestically owned, meaning all shareholders must be US citizens or residents.
Limited Liability Corporation (LLC)
Limited Liability Corporation (LLC) is a hybrid corporation form that combines the benefits of both partnerships and C-corporations. In other words, it allows for limited liability protection and structure similar to C-corporations while also providing the option for the taxation of profits and losses to pass through to shareholders like S-Corporations. Essentially, LLCs allow for fewer formalities and obligations than C and S-Corporations while still offering similar protections.
Non-Profit Corporation is intended for organizations that operate without the objective of generating profit but instead focus on achieving a specific goal, such as improving social welfare or promoting a particular agenda. It is ideal for charitable organizations, educational institutions, religious establishments, and organizations that support social welfare, scientific research programs, and more. Non-profit corporations are tax-exempt, meaning that they are not responsible for any federal and state taxes on profits generated through the organization’s operation.
Professional Corporation is a type of corporation that is ideal for people in various professional industries such as law, engineering, or medical practice. It is intended for professionals that wish to limit personal liability that might arise from claims of malpractice. Professional Corporation also removes degrees of separation between corporations and the professional owners in terms of accountability because the owners of the company must also possess the required professional licenses.
It’s essential to understand the different corporation forms available in Arizona to help make an informed decision when starting a business venture. Regardless of the corporation type chosen, each offers unique advantages that must be carefully weighed against the entrepreneur’s objectives and business model. Remember, seeking legal and professional advice may always further help in making a wise and well-informed decision.