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3-10 Forms of Business Ownership [CH 3

Illustration 3.3 The 8 Largest U.S. Corporations by sales in 2020

Sales
Ranking Company Industry Location ($ millions)
1 Wal-Mart Stores Retail Bentonville, Ark 548,743.0
2 Amazon Retail Seattle, Wa 347,945.0
3 ExxonMobil Motors Oil and Gas Irving, Tx 264,938.0
4 Apple Electronics Cupertino, Ca 294,135.0
5 CVS Health Healthcare Woonsocket, RI 265,285.0
6 UnitedHealth Group Healthcare Minnetonka, Mn 257,148.0
7 Berkshire Hathaway Conglomerate Omaha, Ne 247,981.0
8 McKesson Healthcare Irving, Tx 234,194.0

Source: Fortune 500, Top ten businesses by sales, https://fortune.com/fortune500/

cumbersomeness of corporations are related to the legal regulations that are associated
with it. The disadvantages include:
Legal regulations: Because of their structure, corporations are subject to more
stringent legal requirements in both state and federal regulations that sole
proprietorships and partnerships do not face.

They are restricted to the stipulations of their forming charter which defines the
activity they may engage in; their charter is filed with the Secretary of State in the state
in which they were formed (domiciled).
Corporations must also file annually various reports about their operations which
are placed with the Security Exchange Commission. (SEC).
Taxes: Because corporations are a legal person, their income is subject to both

dividends federal and state income taxes, the same as an individual. The balance after taxes are
Payments to stockholders paid may be paid out to the shareholders where they will pay an additional tax (double
from a corporation's taxation) on the revenue derived from the dividends that they received.
earnings. In contrast, the earnings of a sole proprietorship and partnership are taxed only
once as the owner receives those earnings.

S corporation In some states, corporations are provided some tax relief when they meet specific
Corporations that are taxed size and stock ownership requirements by recognizing them as S corporations
as a partnership while (formerly called Subchapter S corporations). These corporations can elect to be taxed
maintaining the advantages for federal purposes as partnerships while maintaining the advantages of corporations.
of a corporation. The maximum number of corporate shareholders is 100 for an S corporation.

Formation costs: It is generally much more expensive to establish a corporation as
compared to the sole proprietorship and partnership. These costs are related to drafting
the articles of incorporation and the various filing regulations that need to be met.

Starting a Corporation

You have investigated the different forms of business organization, and because of
the nature of your business activity, you decide that the corporate form best suits your
needs. What do you do to set up a corporation?
Although one can incorporate a business without the help of a corporate attorney,
however, it is probably best to use an attorney’s services. Do see a good attorney first

as you start through the incorporation process.
Next on the list is to select a state in which to incorporate. Because of regulations,
incorporation costs, state fees, taxes, and ownership rights vary among the 50 states
this is an important decision. For example, if you intend to operate primarily within
California, you should probably incorporate in that state. However, if your business

will be in DeKalb County, Georgia, then it is probably best to incorporate in Georgia.
Besides the convenience of incorporating in your home state, businesses competing for
state-awarded contracts receive preferential contracts from local government agencies.
domestic corporation Classifying Corporations
Firm doing business in the
state in which it is Corporations are classified as domestic, foreign, or alien, and this classification is
incorporated. based upon where there are doing business in relation to the state in which they are
incorporated (domiciled). A corporation is considered a domestic corporation in the
state in which it is incorporated. If it expects to do business in states other than the

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