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Arizona C-Corporations and S-Corporations

S-Corporation or C-Corporation? Incorporating in Arizona

S-corporations and C-corporations share many of the same advantages and disadvantages. Probably the single biggest drawback to both forms of corporation in Arizona is the difficulty of proper incorporation. The process is much more complex—and requires much more accountant and attorney involvement—than forming a limited liability company, sole proprietorship, or partnership.

Among the many advantages of both the S- and C-corporation in Arizona:

  • Limited liability protection. Shareholders and their families are not typically liable for corporate debts.
  • Relative ease of fundraising. When additional funds are required to maintain or expand the business, additional shares can be sold.

Similarities between an Arizona C-corporation and S-corporation

  • Separate entities. Both the S-corporation and C-corporation are separate legal entities created by filing Articles of Incorporation with the Arizona Corporation Commission.
  • Structure. Both have shareholders, directors and officers. Shareholders own the company and elect the board of directors, who in turn oversee and direct corporate affairs but are not responsible for day-to-day operations. The directors elect the officers to manage daily business.
  • Corporate formalities. Both are required to follow the same internal and external corporate formalities and obligations, such as adopting bylaws, issuing stock, holding shareholder and director meetings, filing annual reports, and paying annual fees.

Differences between Arizona S-corporations and C-corporations

S-corporations are different from C-corporations in the following ways:

  • Ownership. C-corporation shareholders may include any number of individuals, institutions, and other corporations. S-corporation ownership is limited to 100 or fewer individual shareholders, each of whom must be a United States citizen or resident. C-corporations may have multiple classes of stock while S-corporations may have only one.
  • Taxation. C-corporations are separate tax entities, meaning that they pay taxes directly on their profits, and shareholders are subject to personal income tax on any dividends distributed by the corporation. S-corporations are pass-through tax entities, meaning that individual shareholders may deduct their portion of any corporate losses from their personal income tax, and must pay taxes on their portion of any corporate profit. The S-corporation does not file its own tax return.

Choosing a corporate form

There is no single right answer to the question of how to incorporate your business—it depends in large part on your business goals. C-corporations may provide a little more flexibility for growing your business, when it comes to issuing new shares or new classes of stock, but that flexibility must be weighed against your interest in maintaining control over your business or ensuring that like-minded shareholders remain the ultimate power behind the corporate throne.

With corporations, even one owner corporations, meetings and “Minutes” (i.e. typed notes of the meetings) are important. In some states, like Arizona, failure to do and keep the Minutes current can result in the loss of liability protection. So, some businesses hire their law firms to do the Minutes.

Savvy Arizona business attorneys

Located in Phoenix, the Law Offices of Donald W. Hudspeth, P.C. serve the entire Arizona business community. As business attorneys in Phoenix, we have over three decades of combined experience practicing in all areas of Arizona and Phoenix business laws, and most of us have experience owning our own small business or working in the private sector.

Call us at 602-265-7997, toll free at 866-696-2033 or contact us online today for dedicated, skilled assistance with any business issue.

At Law Offices of Donald W. Hudspeth P.C., we do more than connect the dots—we create the dots.

What others are saying about us
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Donald W. Hudspeth
Principal Attorney

Attorney Donald W. Hudspeth has more than twenty years’ experience practicing corporate and business law. Before attending law school, Mr. Hudspeth held a stock brokers license at the age of 21 and owned his own business at the age of 23. He was a business law professor at Arizona State University, West Campus, and has conducted classes and seminars for a number of higher institutions and organizations. Mr. Hudspeth has published two books on law and is the founder of the radio programs Law on the Edge and Law Talk.

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Brian K. Stanley
Of Counsel

Attorney Brian K. Stanley has more than thirty years' experience practicing corporate and business law. Brian also worked for Sandra Day O'Connor in 1976-1977; Formerly with the Phoenix firm of Jones, Hunter & Lerch as of the dissolution of that firm in 1979. (Also Member, Law Office of Brian K. Stanley, PLLC).

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Janae Ashley Perry-Meier
Associate

Janae Perry-Meier is a business and commercial law attorney focusing on international business. Janae handles both transactional and litigation matters, including: forming your business, drafting your contracts, franchising, business disputes, business divorce, mergers and acquisitions, private placements, securities compliance, and corporate governance. Janae also handles trademark registration, office action responses, and infringement cases.

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Michael David Malin
Associate

Michael Malin has been a practicing attorney in Arizona since 2013. He has represented clients through all stages of litigation. Prior to joining the firm, Michael litigated cases involving professional negligence, insurance bad faith, dram shop liability, personal injury and wrongful death, Indian law, probate, and criminal matters. Before attending law school, he worked for several startup companies in the then-nascent field of smartphone and tablet application development.

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Natalia Beard-Artemieva
Attorney

Natalia (Natasha) Beard-Artemieva has been a practicing attorney in Arizona since 2014.

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