A corporation (C or S) is the most complicated type of business to form and to operate due to the large number of restrictions normally mandated. The main characteristic of the corporation is that it is a separate legal entity with a life beyond that of its owners. The corporation has an unlimited lifespan not affected by the death of the shareholders. The greatest disadvantage of a C corporation is that it is a separate taxpaying entity. There is no income or loss pass-thru from a C corporation to the owners. The corporation must generally file form 1120, U.S corporation Income Tax Return to report its income, gains, losses, deductions, credits, and to figure its income tax liability. The corporation pays federal income tax on its income at the corporate level (for non-QPSCs, the first $50,000 of corporate income is taxed at 15%) and the profits taken by shareholders – normally in the form of dividends – are then taxed on their personal tax returns. This is called double taxation. However, one benefit of a C corporation treated as a separate taxpaying entity is the ability for shareholders to benefit from tax-preferred fringe benefits.
The first step in creating a corporation is the filing of the articles of incorporation with the Arizona corporation commission. When you file the articles of incorporation, you are required to submit a certificate of disclosure along with the articles of incorporation. Arizona corporations are required to maintain a statutory agent at a valid address in the records of the Arizona corporation commission at all times, and failure to do so will subject the corporation to being administratively dissolved. Arizona, requires the extra step of public notice advertising (publication of the articles) to alert the general public who might engage in business with the entity that it will be operating as a corporation. The corporation is required to adopt bylaws. Bylaws are written rules that govern how the corporation operates internally, such as how the board of directors will be elected and what votes are required for a particular action.