When it comes to corporations and taxes, it’s important to know the differences between each classification. In a nutshell, a corporation is simply a business entity that is separate and distinct from its owners whereas a personal service corporation is a specific taxing entity that the IRS recognizes. Read below to find more about the characteristics of each.
Characteristics of a Corporation
Corporations are firms that meet specific legal requirements to exist as an entity that is separate from its owners. Stockholders own the corporation and share in the profits and losses of doing business. Here are 3 main characteristics of a corporation:
1. A corporation has legal existence. A corporation can enter into contracts, buy, sell, own, sue, and be sued – just like a person.
2. A corporation can continue to exist beyond the lifespan of its owners. It can be transferred to new owners through selling or gifting shares.
3. A corporation provides limited liability for its owners. If creditors go after the corporation, the firm is typically limited up to the resources it has acquired.
Characteristics of a Personal Service Corporation
A Personal Service Corporation (also known as a PSC) is an IRS-recognized taxing entity. To be recognized as such, it needs to meet these specific (simplified) requirements during the testing period:
1. It’s main activity during the testing period is that of performing services.
2. Employee-owners must own more than 10% of the outstanding stock of the corporation.
3. More than 20% of the PSC’s compensation cost should be for personal services that were carried out by employee-owners.
No matter if you’re looking to form a corporation or a personal service corporation, you’ll need an IRS-EIN-Tax-ID. If you’re looking for an EIN number Wisconsin or are wanting to apply for FEIN, please contact the IRS EIN Tax ID Filing Service for more information!