A corporation is a business entity authorized by the state to act as a single entity. Corporations are best for entrepreneurs who want a formal business structure with the legal right to enter contracts, protect shareholders’ assets, sue and be sued, loan money, and pay taxes. But it involves many processes. These include Corporation filing, designation of registered agent, and many more.
The legal statute of a corporation varies from one state to another. Therefore, you need to seek the guidance of an attorney before your corporation filing. Read on as Global Multi Services takes us through the types of corporations.
What is Corporation Filing?
Corporation filing is a set of legal documents that provides name, address, business purpose, representative information, and other important information about the corporation. It is mandatory for every corporation and filed by the shareholders.
How to Start A Corporation
Starting a corporation requires filing an article of incorporation by shareholders with common stock in the corporation who are also pursuing the same goal. The board of directors governs the corporation and is elected by the shareholders. The number of shares each shareholder owns determines its percentage in the company.
Types of Corporations
There are different types of corporations which includes the following:
C-corporation is a business entity with unlimited numbers of shareholders. They raise capital by selling shares, making it a common entity for many large companies. These business entities are subjected to a double taxation situation. That means the shareholders are taxed individually and on the dividends received from the company.
C-corporations protect the shareholder’s liability from business debt and litigation. The shares in the corporation can easily be bought and sold. The percentage of ownership is also divided based on shares owned by the shareholder.
A closed corporation is a private or family company where shareholders are small and closely associated with the business. The shareholder asset is protected, and the company also experiences greater flexibility in operations.
S-corporation is a business entity with limited shareholders and avoids double taxation. The corporation’s income is passed directly to the shareholders without paying federal corporate taxes if it meets the requirements of a specific internal revenue code.
That means the shareholders are taxed: instead of taxing the company as a separate entity. To qualify as an S corporation, the corporation must meet specific requirements. These includes not having more than a hundred shareholders, must be a citizen, not having partnerships, and many more.
A non-profit corporation is a business entity established for religious, educational, charitable, or political purposes. They often provide public benefit rather than personal profit and do not pay federal and state taxes.
The members of this corporation cannot distribute profits but are allowed to pay wages or compensation for service rendered. Requirements for establishing a non-profit corporation vary from one state to another.
B-corporation is structured to benefit society by meeting the highest standards in legal accountability, public transparency, social and environmental performance. The corporation redefines success in business by providing a more sustainable and inclusive economy. These reduce poverty, inequality while promoting a healthier environment.