What Are The Different Types of Corporations?

Corporations

There are several types of corporations, some of which are:

  • C corporation: Most large companies and many smaller ones are C corporations. They sell ownership as shares of stock. Stockholders have the right to vote on important company decisions at the annual meeting or to vote by proxy. To raise capital, the C corporation can sell more stock, issue bonds, or secure other types of loans.

  • Subchapter S corporation: This type of corporation has a limit of 100 stockholders. It offers most of the limited-liability protection of the C corporation, but Subchapter S corporate income is only taxed once, as the personal income of the owners. It is a “pass-through” entity for tax purposes. The net profits of an S corporation are taxed at the personal income-tax rates of the individual shareholders, whether or not the profits are distributed.

  • Professional Corporation (PC): Medical practices, engineering firms, law firms, accounting firms, and certain other professions can form professional corporations. The initials PC after a doctor’s or lawyer’s name mean that the individual has incorporated the practice or belongs to a group of practitioners that has incorporated. Each state designates which professions can form such corporations. Professional corporations are subject to special rules, such as meeting the licensing requirements of bar associations or medical societies. Professional corporations cannot protect individual members from malpractice liability, but the other members of a PC are protected from liability arising from the negligence of one of the group.

  • Nonprofit Corporation: A nonprofit corporation is not set up for the purposes of shareholder financial gain, but rather with a specific mission to improve society. Churches, museums, charitable foundations, and trade associations are examples of nonprofit corporations (also called not-for-profits). Nonprofits are tax-exempt. Nonprofits may not sell stock or pay dividends. There are no individual shareholders for a not-for-profit corporation, and any net profits that are earned must go toward the advancement of the mission, so there are no dividends issued and income taxes are not paid. Not-for-profits may have members rather than shareholders. Such organizations must be careful to follow applicable laws, rules, and regulations in order to maintain their tax-exempt status.

  • Public benefit corporation (B-corporation): This form of company explicitly includes a civic or environmental benefit into its charter, in addition to including profitability as a goal. The priority level is meant to be the same. B-corporations must report on social and environmental impact as well as financial performance.

  • Limited liability Company (LLC): The LLC combines the best features of partnerships and corporations and can be an excellent choice for small businesses with a small number of owners. In an LLC, profits are taxed only as the personal income of the members, whose personal assets are protected from lawsuits as in a C corporation. In addition, many of the restrictions regarding the number and type of shareholders that apply to the Subchapter S corporation do not apply to LLCs, making them even more attractive. An LLC has a variety of options that make it a flexible type of legal entity. The advice of legal counsel is vital in establishing an LLC, because each state has different laws, and the creation and maintenance of LLC status requires continued compliance.

  • Series limited liability company (SLLC): The SLLC is a form of LLC that provides liability protection across “multiple series” (akin to divisions or subsidiaries) while protecting each from the liability of the others. It is a relatively new form and is available in a few states. The SLLC is like a master corporation with subsidiaries and may be useful when multiple acquisitions are involved.

The LSBF is one of the well-known sources to learn more about various types of corporations.

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