Speaker 1: Thinking about business entities might seem overwhelming, but the good news is, they're kind of like ice cream. The options may seem infinite, but you can just about always find the right flavor for everyone. So, what are business entities exactly? Basically, entities or types are how you want to structure your business, especially in terms of who's involved and who can invest, how you want to be taxed, and how liability works in case the business gets sued. Figuring out the right entity is an important step towards making your business official and successful. Corporations are used by businesses to protect owners and employees from personal liability. The most common flavors are the C-Corp and the S-Corp, which give you different treatments when it comes to paying taxes. To take us on a deeper dive on these two types of corporations, we've tapped an attorney from LegalZoom's Attorney Network.

Speaker 2: Starting with the C-Corp, if you're considering taking your company public and having many invested shareholders, this is any type that would be a great choice because it allows for unlimited investors. Now, that sounds great, right? But there is a big pitfall with starting a C-Corp. When it comes to tax treatment, the subchapter C of the Internal Revenue Service Code says that these corporations must pay taxes on any retained profits at the corporate level, and then again at the individual level when it's distributed to an employee or shareholder. On the other hand, subchapter S corporations, also known as S-Corp, allow for the same well-established liability protections, but you must consider that you are limited to a certain number of shareholders. This type allows the company to retain profits, but it's taxed on the individual level only, based on the exact percentage of ownership of shares of the corporation. For the sake of tax simplicity, most small companies that want to be a corporation use this entity for liability

Speaker 1: protection. When you really get down to it, C-Corps tend to be popular with bigger businesses because they allow for unlimited investors. If you want to go public, this is a great choice, as long as you're comfortable dealing with more complicated taxes. For simplicity's sake, many small companies that want corporate status go for the S-Corp instead. This has easier taxes and gives you the same well-established liability protection, but limits your number of investors. Here's the scoop. Corporations do require some formalities. This includes at least one annual shareholder meeting and recorded minutes of the actions taken by the corporation. Failure to comply with these can affect the liability protection of the corporation for both C- and S-Corporations. But even with the additional work involved, corporations can be a great option for companies that are looking for investment. When it comes to business types, we know there are a lot of options, but that's where we come in. LegalZoom is here to help you make your business official, no matter what the flavor.