Authored by Marius Preda in Business
Published on 12-27-2008
The main purpose of corporations is to legal separate the entity from its owners. This means creditors can’t hold owners personally liable for corporate debts. Below are types of corporations and what makes each different from the other.
These types of corporations are mostly owned by shareholders. It is the most common of all corporation structures. Like most corporations, this entity separates its owners from legal obligations protecting its shareholders from company debt and liability. An election of Board of directors who elect officers who in turn hire employees is a typical structure found within this type of corporation. This form of corporation can have an unlimited number of shareholders however it is double taxed.
- Unlimited number of shareholders
- Shareholders don’t need to be US residents or citizens
- Unlimited life span beyond its owners
- Easy facilitation of ownership transfer by sale of stock
- Easier to raise capital through stock and bonds selling
Closed Corporation (C-type)
This type of corporation has similarities with a general corporation with a few variations. First it operates without a board of directors. This means no annual meetings. Second, it has a limited number of shareholders numbering to 30-50 only. Another distinct difference is shares must first be offered to old existing shareholders before selling to new ones. It has share restrictions clause.
Quasi Closed Corporation
The quasi close type is a variation from of the closed corporation type. The main difference is it operates without the share restrictions or defaults. Other than that it is similar with the closed type corporation structure.
S type Corporation
The S type is the best option for small businesses. It has combination advantages of sole proprietorship, a partnership as well as a corporation. Its main difference from the standard or general corporation type as well as from the C type corporation is that it has special tax provisions designated by the IRS. This means shareholders of S type corporations are taxed only once unlike the others which are double taxed.
An S type will have 1-75 stockholders which are all citizens of the United States. However not all business can qualify for S type status. Business like financial institutions like banks and insurance companies taxed under Subchapter L are not eligible.
This corporation style is designed for professions like lawyers and accountants.
Limited Liability Corporations is like a cross breed of a corporation with a partnership. It has the tax advantages of a partnership with the protection from liability of a corporation. It is similar to the S type corporation without the IRS restrictions.
- Limited life span to 30 years
- It has no ownership or sale of stock /li>
Non profit Corporation
This type of organization is what most churches, charity institutions, public services and educational institutions use. It is not focused on income generation. Because of this, no part of its income is shared to its members. It also not subjected to tax.
There are several state corporations. A few of them are known as the California Corporation, Nevada Corporation and Delaware Corporation. These corporations empower and protect shareholders of their state however they pay extra tax on the income earned within the state except Nevada.